The uncertainty of the stock market can bring even the most seasoned investors to their knees. As the market waxes and wanes with doubt and wonder, many investors are looking for short-term trends to capitalize on. This time, they are looking to a rotation to small-caps that may hold and last for the foreseeable future.
The truth is, since small-cap stocks are a relatively small portion of the overall market, they are often overlooked. This means that when the market as a whole is experiencing a downturn, the brunt of that impact is felt more heavily by small-cap stocks. In contrast, when the market rises, small-caps usually experience the greatest gains.
This can make small-cap stocks a very attractive option for investors who are looking to diversify their portfolio and take advantage of short-term market fluctuations. And, as we have seen in recent months, these stocks have been on a tear. They have experienced double-digit gains since the beginning of 2021, and are up more than 45% in just the past 6 months.
So, does this current rotation to small-cap stocks have the staying power to last? That is the question many investors are asking.
Unfortunately, there is no definite answer. The truth is, in the current environment, no one knows for sure. Although the trend has been positive for the past 6 months, there is no guarantee that it will continue.
That being said, there are a few things working in the small-caps’ favor. First, many large-cap stocks have hit all-time highs, leading some investors to take money out and shift to smaller companies. Second, vaccine rollouts, low-interest rates, and improved economic outlook have all calmed investors down, leading to more market stability.
All in all, while it remains to be seen if the rotation to small-cap stocks will continue to be beneficial for investors, the outlook is positive. Small-caps have demonstrated a remarkable resilience to the volatility of the stock market, and with the right approach, they may be able to hold and last this time around.
