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Chart of the Day / Russell 2000 to 1,800 by Year-End

Russell 2000 to 1,800 by Year-End

September 18, 2018

Small cap stocks have been the standout winners of 2018.

Granted, it’s fair to wonder how much longer they can outperform.  But from what we’ve seen, the small-cap rally could push higher.

As compared to the 8% gain for the S&P 500, the Russell 2000 is up 10% on the year so far.  And to be honest, we wouldn’t be shocked to see the Russell 2000 at 1,800 by year-end.

“Everyone’s flocking to the U.S.,” said Kristina Hooper, chief global market strategist for Invesco, as quoted by The Wall Street Journal. “Investors view small- or midcap names with more U.S. exposure as a safe place where they wouldn’t have to deal with the trade war.”

In addition, those worried about trade disputes, are betting on companies with a greater share of domestic earnings, or small cap names.

Analysts Agree

We’re not the only ones calling for 1,800 on the Russell 2000.

In fact, B. Riley FBR also believes it’ll happen. We’re in the early innings of this run,” they noted in May 2018, as quoted by CNBC. “This is a trade that’s got legs.”

Analysts at Stifel say much of the same.

They believe small caps will rally into the close of the year.  All thanks to strong financial performance and tax reform, which reduced the corporate tax rate on small cap stocks.

“As we move into the second half of the year, the market environment is positioned well for U.S. small cap equities to remain one of the preferred markets,” global head of investment strategy Michael O’Keeffe said, as quoted by CNBC. “Small business owners continue to anticipate greater sales and even better business conditions for the remainder of the year. We expect this to result in increased investment spending that ultimately leads to GDP growth.”

Driving further interest into small cap stocks is the fact most are insulated from geopolitical issues, such as trade war fears.  Remember, small caps have much less exposure to international headaches than companies in the S&P 500.

This is just something to keep in mind if you’re looking for opportunities.