Small-cap stocks surge in expectation they will benefit disproportionately from a Fed interest rate cut
Giant technology stocks are “no longer the only game in town”, according to investors who over the past week have moved out of the megacaps that have driven the market rally for years in favour of smaller companies and other previously unloved sectors. The Russell 2000 small-cap index has jumped 7 per cent since last Thursday, in a dramatic market shift sparked by falling inflation and encouraged by an improving earnings outlook.
“I think a lot of people were caught offside,” said Brandon Nelson, a portfolio manager at Calamos who specialises in small- and mid-caps. “There was some complacency with people parked in the megacaps and ignoring or even shorting small-caps, because that had been the right pair trade for so long.” Meanwhile, having fallen well behind the earnings growth of the Magnificent Seven last year, other companies’ profits are now improving as megacap tech stocks’ earnings growth slows.
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