Now might be the best time to buy small-cap stocks, according to the investment firm BTIG. In December, the Russell 2000 index, which tracks this segment of the market, dropped more than 8%. BTIG points out that historically the index tends to decline in the final month of the year before regaining momentum by mid-February.
Details
Small-cap stocks could make an excellent Christmas gift for investors, CNBC reports, citing a note from BTIG strategist Jonathan Krinsky.
In December, the Russell 2000 index, which tracks the shares of smaller and medium-sized companies, dropped more than 8%. Krinsky believes this decline aligns with a historical pattern of “mid-December weakness turning into strength into mid-February.” Around this time, small caps usually begin to outperform their large-cap peers, he adds.
Context
For the year to date, the S&P 500, which measures the performance of the largest publicly traded companies in the U.S., has gained 23%, the tech-focused Nasdaq Composite is up more than 29%, while the Russell 2000 has climbed just over 10%.
The small-cap index has had a few periods of outperformance throughout 2024, though they were short-lived, CNBC notes. The first came in July, which analysts at the time attributed to capital reallocation after disappointing earnings by large-cap tech names. The second period of outperformance was November, following the election of Donald Trump as U.S. president. Investors have seen his proposed deregulation agenda as especially beneficial for smaller businesses, CNBC previously reported.
Smaller companies should also be buoyed by Fed rate cuts — with rates cut by 0.50 percentage points in early September and then by 0.25 percentage points in November. On Wednesday, December 18, the Fed lowered rates again by an expected 0.25 percentage points but signaled that there would be two rate cuts in 2025 instead of four, as previously anticipated. This sent U.S. stock market indexes into a tailspin: the S&P 500 fell 2.95%, the Nasdaq Composite lost 3.56%, and the Russell 2000 led the losses with a 4.40% drop.
What other analysts say
The Russell 2000 is set to outpace the S&P 500 next year and could reach new highs, Piper Sandler’s chief market technician Craig Johnson said in December. Jefferies and Fundstrat strategist Tom Lee, who spoke shortly after the U.S. presidential election, has a similar view, according to CNBC.
