It has been a fantastic year for the stock market. But not all stocks are soaring... Small-cap stocks have been mostly left out of the rally. Until earlier this month, they were up just 1% for the year... during a time when large caps soared nearly 20%.
Editor's note: Yesterday, Chaikin Analytics founder Marc Chaikin explained why he believes small-cap stocks will soar in the months ahead...
And he's not alone in expecting a strong move higher. Over at our corporate affiliate Stansberry Research, our friend Brett Eversole also sees evidence for a rally in small caps...
Today, we're sharing an essay from Brett that last appeared in the July 23 edition of his free DailyWealth e-letter. In it, he explains why history points to more upside ahead for small-cap stocks...
A Major Small-Cap Rally Is Just Beginning
By Brett Eversole, editor, Stansberry Research
It has been a fantastic year for the stock market. But not all stocks are soaring...
Small-cap stocks have been mostly left out of the rally. Until earlier this month, they were up just 1% for the year... during a time when large caps soared nearly 20%.
We recently witnessed a major reversal, though. Small-cap stocks jumped 6% in the second week of July. It was their best week of gains since last November.
Not only that, but according to history, the rally should continue... And as I'll explain, we could see gains of 18% over the next year.
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If you've been watching the market in recent years, you might have decided that large caps are the only stocks worth owning.
This group has led the U.S. market over the past 15 years. And over the past five years, the largest stocks have beaten just about everything else.
Given the huge outperformance from the big players, it's no wonder many investors have lost interest in smaller companies. But according to history, now isn't the time to give up on small caps.
It's never wise to go "all in" on any kind of investment. You can do a lot better putting some of your portfolio into the unloved parts of the market... because once folks have thrown in the towel, prices tend to start rising.
Small-cap stocks are likely near that point now. The Russell 2000 Index – a benchmark for small caps – is about flat over the past three years. The S&P 500 Index jumped more than 20% over the same period.
But now, the Russell 2000 has finally broken out. It jumped 6% earlier this month. Take a look...
This was a major rally for small-cap stocks after a whole lot of nothing in 2024. And the Russell 2000 hit a multiyear high in the process.
The index has jumped 6% or more in a week just 45 times since 1979 – about once per year. And importantly, it tends to keep soaring after those rallies. Take a look...
Small caps have been good to investors over the long term. The Russell 2000 is up 9.1% annually over the past 45 years.
But you can dramatically improve those returns if you buy after a one-week spike like we recently witnessed...
Similar setups led to 7.9% gains in three months, 14.2% gains in six months, and 18.1% gains over the next year. That's a massive improvement over the normal gain for small caps. And these situations led to profits 75% of the time over the next year.
Small caps are still massively underperforming large caps overall. But the recent jump might be a sign of changes to come.
And while large caps will likely keep rising, small caps could rack up even bigger gains in the months ahead.
This is a market you want to consider right now. And if you're looking to take advantage of the recent jump, the iShares Russell 2000 Fund (IWM) – an exchange-traded fund that tracks U.S. small caps – could be one way to add exposure in your portfolio.
Most folks have given up on these stocks. But according to history, now is the time to buy.
Good investing,
Brett Eversole Editor's note: For regular insights like these, consider signing up for Brett's free DailyWealth e-letter...
In it, he and his team share ideas for building long-term wealth and day-to-day opportunities they see shaping up in the markets. Plus, just like the Chaikin PowerFeed, DailyWealth is 100% free. And it publishes in the morning each weekday the markets are open.
Learn how to get started with DailyWealth by clicking here.
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
-0.13%
8
17
5
S&P 500
+0.05%
113
315
68
Nasdaq
+0.2%
11
61
27
Small Caps
-1.11%
713
987
272
Bonds
+0.54%
Consumer Discretionary
+1.65%
9
25
18
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks are Bullish. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Materials
+1.19%
Utilities
+1.09%
Health Care
+0.91%
Financial
+0.6%
Staples
+0.49%
Real Estate
+0.2%
Industrials
-0.05%
Energy
-0.42%
Communication
-1.22%
Discretionary
-2.24%
Information Technology
-4.77%
* * * *
Industry Focus
Software & Services
26
80
29
Over the past 6 months, the Software & Services subsector (XSW) has underperformed the S&P 500 by -6.95%. Its Power Bar ratio, which measures future potential, is Weak, with more Bearish than Bullish stocks. It is currently ranked #15 of 21 subsectors and has moved down 4 slots over the past week.
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