Is the Small Caps rally just beginning or has it run its course? A comparison between the Russell 2000 stocks and the Italian FTSE Small Cap index to hunt for opportunities.
Is it late to invest in Small Caps? Over the past two months, small-cap companies have captured investors’ attention with brilliant performances.
The Russell 2000 index, which represents small American companies, grew by 7.78% in just two weeks, marking its best result since 2022. This rise was stimulated by expectations of an imminent lowering of interest rates interest from the Federal Reserve, thanks to a slowdown in inflation.
Small caps, being particularly sensitive to financing costs, could benefit enormously from lower rates.
However, there is a risk that this rally may have reached its peak. Analysts warn that the recent momentum may not last long and the economic-political environment could influence future performance.
Find out what the experts say and what the prospects for Small Caps could be.
- Source: JP Morgan Asset Management
Is it late to invest in Small Caps?
The Small Caps rally was fueled by expectations of an interest rate cut by the Federal Reserve as early as September, thanks to the slowdown in inflation. Small companies, more sensitive to financing costs, are the ones that could benefit most from lower rates.
According to Goldman Sachs, the rally could continue unless technology stocks continue to beat forecasts, reducing the focus on small caps.
Experts note that these stocks trade at a discount of more than 20% to large caps, while their long-term historical premium can reach 30%.
- Source: Bank of America
However, there are risks to consider, with three main factors that could influence the sustainability of this trend.
First, Société Générale notes that the small-cap rally was largely driven by short covering by hedge funds, not broad market demand. This could indicate that the rally has already reached its peak.
Second, the real effect of any Federal Reserve interest rate cuts will depend on how gradual they are. A possible “soft landing” in the economy could limit the benefits for small caps.
Finally, a possible presidency of Donald Trump may not favor small businesses. His policies, such as increased tariffs and immigration restrictions, could increase inflation and further complicate the economic environment for small caps.
| DISCLAIMER The information and considerations in this article should not be used as the sole or primary basis for making investment decisions. The reader maintains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk propensity and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to the public for savings. |
Original article published on Money.it Italy 2024-07-27 14:16:00. Original title: È tardi per investire nelle Small Cap? Previsioni degli analisti
