The small-cap Russell 2000 index (^RUT) rose more than 1.5% on Wednesday, far outpacing the gains of the three major indexes and nearing its 52-week high of 2,300.
If the Russell index closes at current levels, it would be the highest closing price for the index since November 2021.
Small-cap stocks are one of the most controversial trades on Wall Street in 2024. Strategists argue that lower interest rates will benefit the group, as the sector is highly exposed to refinancing risks. Wall Street strategists say this theory, combined with evidence that the U.S. economy continues to see strong growth, has once again made the case for investing in small-cap stocks.
Morgan Stanley Chief Investment Officer Mike Wilson recently moved to “neutral” on the company's allocation to small- and large-cap stocks in response to the Federal Reserve's 0.5 percentage point interest rate cut in September.
“For us to be fully bullish on small-cap stocks as a whole, key macro indicators would need to show that a clear acceleration in growth is on the horizon,” Wilson said in a note to clients on Tuesday. ” he wrote. “For now, we are focused on unique opportunities in the small-cap space.”
He added: “Small-cap valuations are relatively cheap and earnings are expected to improve. To some extent, this has been the mantra for the small-cap index for almost two years, but as earnings continue to shrink, The consensus is now more optimistic.” Earnings expansion is just around the corner.”
