Small-cap value stocks are on the rise, outperforming larger counterparts in the market. The Russell 2000 index is up 1% for the day and nearly 4% for the week, marking its third-straight positive week. Linda Duessel, senior equity strategist at Federated Hermes, advises investors to focus on profitable small-cap companies with strong growth profiles.
According to Duessel, small-cap stocks are historically inexpensive, especially those that are profitable. She recommends looking for companies that are growing enough to potentially be assigned mid-cap status in the future. Exchange-traded funds focused on small-cap value stocks are currently outperforming the broader Russell 2000 index.
The recent rally in small-cap stocks is part of a broader trend of rotation out of mega-cap tech companies. The Russell 2000 is on track for a three-week winning streak, while larger indices like the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite are facing losses for the week.
Investors are closely watching earnings reports this season, with more than 40% of S&P 500 companies having reported so far. The majority of these companies have exceeded Wall Street’s expectations. Key names reporting next week include tech giants like Microsoft, Meta, Amazon, and Apple, as well as McDonald’s and Boeing.
Overall market sentiment is also influenced by factors like inflation outlook and consumer sentiment. The University of Michigan Survey of Consumers shows a slight dip in optimism in July, but expectations for inflation remain low. The Federal Reserve’s preferred inflation gauge matched economists’ expectations, indicating stability in price levels.
In premarket trading, stocks like Coursera and WW International are making significant moves, while companies like Dexcom and Boston Beer Company are facing challenges after hours. The market is showing signs of volatility, with stock futures opening higher on Friday after a week of ups and downs.
