Investors Are Betting On Small-Cap Stocks: Here’s Why

Small ones companies or small cap companies require more visibility in stock markets. Most of this year investors They focused on tech giantspromotion S&P 500 Index almost 20%. However, the scenario has changed radically. The Russell 2000 index, which includes the 2,000 smallest companies with a combined value of less than Manzana ($3.4 trillion), has risen nearly 8% over the past month, hitting its highest level since early 2022. Meanwhile, the S&P 500 index was little changed, and the Nasdaq 100 lost 3%.

When EuropeSmaller-cap stocks have also seen big swings. Since their February lows, the MSCI Europe Small Cap Index has gained 11% and has gained income 9% per annum. While it is too early to bet on long-term change, there are three reasons for the turnaround in sentiment market.

Inflation and rate cut expectations boost small businesses

July 10 big tech from USA They found themselves up against a worthy opponent: data inflationwhich was 3% year-on-year in June, down from 3.3% previously. Inflation, which had been a persistent concern, showed clear signs of moderation with a monthly decline Prices for the first time since 2020 and a smaller-than-expected year-on-year increase in prices. This information was enough for investors began to think about possible cuts interest rates from the side Federal Reserve System (FRS) From september.

At the same time, Bank of America’s latest survey of fund managers shows that high inflation is no longer investors’ biggest fear. economy It’s getting cold. That week, the Russell 2000 rose 9.2%, while the Nasdaq lost -4.2%.

Technological factors drive small business growth

In early July, hedge funds held a near-record short position (betting on the market to fall) Actions small cap. However, the publication of data inflation quickly changed this dynamic.

During the week ending July 12, ETF Equities (traded funds) saw the second-largest inflows of the year, although large-cap ETFs received the bulk of the moneyThe capsules were the real stars.

The iShares Russell 2000 ETF saw $3.7 billion in flows, representing more than 6% of its market cap. marketcompared to a 2.4% flow recorded by the SPDR S&P 500. This rotation from short to long positions led to a significant rise in small-cap stock prices.

The Impact of the Presidential Election on Small Business

WITH elections Americans are around the corner, investors overestimate their wallets. The rotation also fits with Donald Trump’s predicted victory. The Republican candidate has released several messages pointing to certain risks for large technology companies, including those associated with artificial intelligenceand great support companies traditional, including small ones, with a bias anti-globalization and protectionist, which favors companies non-global North Americans, a philosophy that Vice President-designate J.D. Vance embraces with even more enthusiasm and energy than Trump himself.

Is small business growth temporary?

The question now is whether this rise in small-cap stocks is a new pattern or just a short-term move. interest rates and shifting political dynamics suggest this may be more than just a fad. However, as sometimes happens in markets, things could change quickly. A sign of further delays in rate cuts from fed or unexpected increase inflation could undermine this trend.

Small-cap stocks surged last December on hopes of a quick cut interest ratesbut it became clear that the target was still a long way off. Any sign in that direction could just as quickly end the small-cap rally.