Rally in Small Caps

 

Weeks like the last one are why investors are so attracted to small caps. The asset class rallied 4% versus a 2.2% rally in large caps, and we finally saw the Russell 2000 Small Cap Index cross above its 50-day moving average (the S&P 600 Small Cap Index did so back on 2/24).

The breadth of the recovery was widespread, with an absolute rip-your-face-off rally in small cap energy stocks—that sector soared 24.3%. Sure, it’s still down 75% from mid-2014, but the rally is still an encouraging sign. Oil is recovering, and is now trading above 34.00—a price that is undoubtedly helping fuel the market rebound.

Here is small cap sector performance over the past week.


And below is a chart showing how the small-cap sectors are doing compared to their large-cap competition year-to-date. Note that we’re finally starting to see some small-cap sectors claw their way ahead, including consumer stocks, technology and financial stocks. All the way on the right of the bar graph, you can now see that small and large caps are now almost neck-and-neck this year.

Would you have thought that would be the case two weeks ago?


We’re not yet in a bull market. But it doesn’t feel so bearish anymore. Let’s call it a “ram” market—they say to hell with attacking from above (bear) or below (bull), and just come in head-on and at full speed. You never really know what’s going to happen when a ram gets in to the mix.

This is an excerpt from Cabot Small-Cap Confidential, which features little-known stocks with big potential. It offers a limited number of subscribers the opportunity to discover overlooked, low-priced stocks that have the potential to skyrocket. This advisory is best suited to experienced investors who embrace volatility.


Stock Picks

Loews Corp.

This undervalued stock has strong future earnings growth expectations.

Biogen

Biogen is the market-share leader in treating multiple sclerosis.

Weibo

One of Paul Godwin’s favorite stocks in his Cabot Emerging Markets Investor portfolio.

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