Wall Street Favors Small-cap Stocks Amid Market Volatility

         

Summary: With rising volatility and geopolitical risks, Wall Street fund managers and analysts suggest considering small-cap stocks as a good bet. The Russell 2000 index has seen five straight days of gains, prompting investors to turn their attention to this asset class. Small- to mid-sized companies have historically outperformed in the past century, particularly those that are profitable. Market experts also note that small-cap stocks now appear cheaper than the broader market, making it an attractive entry point for investors. Names like Gentex, Ingredion, Ionis Pharmaceuticals, Evercore, and Harley-Davidson are among the small-cap stocks with competitive advantages and attractive valuations.

With the increase in market volatility and ongoing geopolitical risks, Wall Street fund managers and analysts are suggesting that investors consider small-cap stocks. The Russell 2000 index, which represents small-cap stocks, has recently seen five consecutive days of gains, indicating a potential opportunity in this asset class. According to Dan Niles, founder and senior portfolio manager of the Satori Fund, his fund has recently purchased a large number of stocks in the Russell 2000, as well as consumer staples stocks. These moves reflect the fund manager’s confidence in small-cap stocks in the current market environment.

Historically, small- to mid-sized companies have outperformed larger companies in most decades over the past century, especially those that are profitable. Citi and Morningstar both highlight the relatively cheaper valuations of small-cap stocks compared to the broader market. Citi’s analysts led by David Bailin, chief investment officer of Citi Global Wealth, recommend focusing on high-quality small firms that have been overlooked in the surge of mega-cap stocks, while avoiding low-quality companies found in passive indices. Morningstar also sees small-caps as the most attractive size segment in the U.S. market.

Investing in small-cap stocks can be done through exchange-traded funds (ETFs) such as the iShares Russell 2000 ETF (IWM) or the iShares Core S & P Small Cap ETF (IJR). Additionally, CNBC Pro has identified several small-cap stocks that meet specific criteria, such as buy ratings from at least 60% of analysts, potential upside of 50% or more, market capitalization of at least $1.5 billion, and coverage by at least five analysts. Some of the stocks that meet these criteria include Gentex, Ingredion, Ionis Pharmaceuticals, Evercore, and Harley-Davidson.

In conclusion, Wall Street is suggesting that investors consider small-cap stocks as a good bet in the current market environment. These stocks have shown resilience amid rising volatility and geopolitical risks, and historical data indicates their potential for outperformance. With valuations appearing cheaper relative to the broader market, now may be an attractive entry point for investors in small-cap stocks.

Tags: Wall Street, small-cap stocks, market volatility, Russell 2000, investors, asset class, geopolitical risks, profitable companies, cheaper valuations, ETFs

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