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Small-Caps Will Make All-Time Highs Sooner Than Investors Realize
Money rarely leaves markets.
It rotates.
We are in the midst of a massive rotation favoring recent laggards.
Small-caps will make all-time highs sooner than investors realize.
As a data researcher, nothing gets me more excited than when a narrative shifts. Often, behavioral changes begin subtly…then the forward picture illuminates.
Last week, I highlighted how Energy stocks are ready to lead. The hidden message in that writeup was how a renaissance was underway in our data.
Leadership is changing…fast.
Turns out, this momentous reshuffling of the market deck is favoring smaller firms.
The recent all-time highs quoted by pundits has been large-cap focused. BUT I’m making the data-driven case that small-caps are next in line for success.
Not only is our data favoring the laggards, two historical studies prove why betting small could be the next big ticket.
Technology stocks have gotten all the glory. The A.I. resurgence has captivated the crowd. Fortunately for MAPsignals, back in early November we made the case for the sector to explode in 2024.
We saw a layup in the data…and it didn’t disappoint with Technology stocks gaining +22.88% since that post.
Today’s environment, however, signals more broadening participation in the market. Essentially, growth isn’t the only game in town.
Below shows this wonderfully. In the month of March, every major sector except Consumer Discretionary and Real Estate have outperformed Tech:
That’s a tidal wave price shift, favoring many smaller cap areas. Clearly, professional investors see value lurking in recent lagging areas.
Diving below the surface illustrates this beautifully.
When we tally all inflows this week, 86% of buys are focused in companies with market-caps below $50 billion in market cap:
Even more striking is how companies with market sizes of $50B+ barely had any buying to write home about.
Anyone overweight mega-cap tech has felt this in their portfolios with crowded high-flyers failing to notch new highs recently.
So, where is the newfound capital flowing specifically? I’m glad you asked!
As showcased last week, our sector rankings completely reshuffled with Energy taking pole position.
Industrials and Financials jumped to 2nd and 3rd place respectively, as many of the stocks in those areas attract Big Money:
Folks, there’s a lot of opportunity right now in many areas NOT on the lips of the media.
Battered small-caps are ready to surge and 2 historical studies only reinforce this non-consensus narrative.
First, let’s get into some technical data. The 1st quarter is nearly complete with the S&P 500 zooming 10%.
This is in stark contrast to small-caps barely eking out a positive return. The S&P Small Cap 600 is only up 1.4% this quarter.
If this underperformance has you feeling gloomy…consider this fact. Since 1995, whenever the S&P Small Cap 600 has had lackluster performance in Q1, to the tune of 2% or less, it kicks off a monster market-beating rally.
The following months of April – December surge on average 17.38%. A slow start to the year is quite bullish into yearend.
Marty McMAP is zooming in on the opportunity ahead:
Up to this point, we’ve got a really nice story building for small-caps. Sectors are reshuffling, money flows favor the area, and a weak start to the year is a very bullish technical omen.
BUT there’s one other major macro signal to consider. One that gives me the courage to suggest that small-caps will make all-time highs sooner than investors realize.
It’s due to the fact that interest rates are set to decline. The Fed effectively greenlighted rate cuts coming later this year.
Whenever rate cuts occur and the economy is humming along, small-caps rip!
Since mid-1995, whenever the Fed first cuts rates and the economy isn’t in recession AND doesn’t fall into recession a year later, the S&P Small Cap 600:
- Gains 10.6% 3 months later
- Soars 19.3% 12-months later with a 100% batting average
Ladies and gentlemen, the small-cap train is leaving the station.
Unbutton the bear suits.
A rally of 19% would easily put the lagging group into all-time high territory…stunning the crowd.
Anytime the technical and macro favors this amount of upside, you can bet single stocks will double and triple in this backdrop.
This is where having a market map is critical…
Let’s wrap up.
Here’s the bottom line: A small-cap rebirth is here. Sector leadership and money flows signal a reshuffling of the stock market deck.
Additionally, lackluster Q1 performance isn’t something to fear…it’s something to cheer.
Throw in the fact that the Fed will be cutting interest rates in 2024, and you’re staring at one heck of a bullish cocktail.
Our Top 20 leaderboard is reshaping weekly with all-star stocks in Energy, Industrial, and Financial sectors.
If your portfolio could use a recharge, don’t wait for the media bull whistle to blow…by then it’ll be too late.
Instead, use a map.
Tomorrow’s small-cap leaders are here today.
Go big by going SMALL.
If you’re a professional money manager, Registered Investment Advisor (RIA), or someone that take investing seriously, get a MAP PRO subscription and see the actual stocks under heavy accumulation day after day.
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MAPsignals’ volume and price analysis tools enable investors to identify unusually large trading activities around individual stocks and ETFs. This allows traders and investors to move beyond sentiment with a more precise, predictive, and measured data analysis tool that MAPs the signals being delivered by the market’s biggest players.MAPsignals capabilities include: Read more »
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