Stock Market Rally of the Year: Is Small-Cap Investing the Way to Go?
By 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.[0] 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.[1] 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.[1]
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.[2] Fed Chair Jerome Powell said Tuesday that more rate hikes are needed amid the strong labor market.[3]
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.[4] Officials from the Federal Reserve have been consistently stating that interest rates will increase, potentially reaching a level of 5% or higher.[5]
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.[1] If you would like to find out more about Sensate and their groundbreaking infrasonic therapy, please click here.[1]
Since mid-2022, the Federal Reserve's aggressive interest-rate campaign has led to a moderation of inflation.[0] 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.[2]
0. “The stock market rally of 2023 is losing steam – the Nasdaq and S&P 500 just notched their worst weekly runs in nearly …” Business Insider Africa, 13 Feb. 2023, https://africa.businessinsider.com/markets/the-stock-market-rally-of-2023-is-losing-steam-the-nasdaq-and-sandp-500-just-notched/qsyc9fh
1. “Why History Says 2023 Will Be A Banner Year For Stocks By Benzinga” Investing.com UK, 8 Feb. 2023, https://uk.investing.com/news/stock-market-news/why-history-says-2023-will-be-a-banner-year-for-stocks-2908244
2. “The Stock Market Is Rallying. Will It Last?” Money, 8 Feb. 2023, https://money.com/will-stock-market-rally-last/
3. “The Stock Market Is Off To A Great Start In 2023 — Here's How The Federal Reserve, Interest Rates May Cha” Benzinga, 9 Feb. 2023, https://www.benzinga.com/analyst-ratings/analyst-color/23/02/30821783/the-stock-market-is-off-to-a-great-start-in-2023-heres-how-the-federal-reserve-inte
4. “3 Stock Strategists and 3 Scenarios for the Stock Market in 2023” Morningstar, 9 Feb. 2023, https://www.morningstar.com/articles/1136581/3-stock-strategists-and-3-scenarios-for-the-stock-market-in-2023
5. “As stocks rally in 2023, investors can't stop thinking about 2021” AOL, 4 Feb. 2023, https://www.aol.com/stocks-rally-2023-investors-cant-113551223.html
