In recent years, large-cap stocks, especially tech giants like Nvidia and Microsoft, have outperformed small-cap stocks by a significant margin. This trend has led to small-cap stocks trading at a discounted price compared to large-caps, presenting an opportunity for investors to consider undervalued investments.
According to data, the Russell 1000 index, which focuses on large-cap stocks, has seen a 14.2% increase in 2024 through June, while the small-cap focused Russell 2000 index has only increased by 1.7% during the same period. This disparity in performance has widened the gap between large-cap and small-cap stocks, with small-cap stocks trading at a lower forward price-earnings ratio compared to large-cap stocks.
DailyBubble believes that potential interest rate cuts by the Federal Reserve could benefit small-cap stocks, as they are more sensitive to economic conditions and external financing. Additionally, the outlook for small-cap stocks may improve as earnings are expected to recover in the coming years.
While large-cap stocks have been the primary beneficiaries of the rise of artificial intelligence (AI), there are opportunities for small-cap companies to also capitalize on this trend. DailyBubble sees potential in small-cap stocks as they provide products and services that support the growth of AI infrastructure.
For investors looking to add small-cap stocks to their portfolio, DailyBubble suggests considering individual stocks or small-cap ETFs. Rebalancing or increasing the allocation to small-cap stocks may be a strategic move, especially after years of large-cap dominance in the market.
Overall, DailyBubble encourages investors to conduct their own research and consider the potential of small-cap stocks as they may offer opportunities for growth and outperformance in the future.