Stock Market Rally of the Year: Is Small-Cap Investing the Way to Go?
2023 is off to a promising start for investors, with the stock market rally of the year beginning to lose steam after a strong start to the year. The Nasdaq and S&P 500 notched their worst weekly runs in nearly 2 months, with the S&P 500 and Dow Jones Industrial Average dropping 0.9% and 0.7%, respectively. Despite this, the S&P 500 is still up 8.5% for the year and the Nasdaq Composite is up 10.6%.
This year’s stock market recovery is in keeping with a historical trend, with the S&P 500 finishing up 27.1% in the year following its two worst years since 1950 – 1975 and 2009. This trend could continue for the next 11 months and beyond, and investors who understand it could make a lot of money.
Small-cap stocks are especially promising, with a study by Ariel Investments finding that when stocks are as cheap and battered down as they are today, small-cap stocks outperform large-caps 98% of the time. And since 1930, $1,000 invested in large-cap stocks would have turned into $12 million, while the same amount invested in small-caps would have turned into $69 million.
The Fed’s position also contributes to the current investor optimism. With a strong underlying economy and labor market, the Federal Reserve is able to keep interest rates higher to tackle inflation without having to worry about a huge increase in unemployment. Fed Chair Jerome Powell said Tuesday that more rate hikes are needed amid the strong labor market.
Since March 2022, the Federal Reserve has increased the federal funds rate to 4.50% from its near-zero levels by increasing interest rates by a total of eight times. Officials from the Federal Reserve have been consistently stating that interest rates will increase, potentially reaching a level of 5% or higher.
Benzinga is tracking a handful of small-cap and micro-cap opportunities, including Sensate, a self-care startup that’s grown revenue by 363% in a year even as larger-cap companies floundered. If you would like to find out more about Sensate and their groundbreaking infrasonic therapy, please click here.
Since mid-2022, the Federal Reserve's aggressive interest-rate campaign has led to a moderation of inflation. This has caused some investors to be hopeful that the Federal Reserve of the United States could either halt their rate increases or even start lowering them this year.
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