Small-cap stocks are more attractive! Wall Street's most optimistic analyst: Russell 2000 index will rise by 50% this year!

According to the VESYNC financial APP, one of the most optimistic market analysts on Wall Street, Thomas Lee, co-founder and head of research at FundStrat Global Advisors, firmly believes that the Russell 2000 Index, which tracks small-cap stocks, will rise by 50% this year.

Lee has a long-term bullish view on the stock market. In the summer of 2022, when the US stock market plummeted, he predicted a significant rise by the end of the year. At that time, he was wrong, mainly because the Federal Reserve was busy raising interest rates to combat inflation. In mid-2023, despite no improvement in the stock market, Lee once again predicted a significant rise by the end of the year.

This time, Lee got it right: in 2023, the S&P 500 Index rose by 24.2%, the Nasdaq surged by 43.4%, the Dow Jones rose by 13.7%, and the Russell 2000 Index closed up by 15.1%.

Of course, two catalysts were at play:

The Federal Reserve hinted at the end of rate hikes in the fall of 2023. In December last year, Fed Chairman Powell indicated that interest rates may fall in 2024; Investor interest in the potential economic impact of artificial intelligence has surged.

Federal Reserve policy remains key

Lee still believes that the Russell Index will rise, reasons include: rates will fall; the stock prices of Russell 2000 Index constituents are much lower than those of S&P 500 Index and Nasdaq 100 Index constituents; there is a lot of cash on the sidelines in the money market.

As the first quarter comes to a close, the Fed still promises rate cuts but has not disclosed when they will occur. Therefore, its key federal funds rate remains between 5.25% and 5.5%, the level reached in July 2023.

So far this year, the S&P 500 Index, Nasdaq, and Nasdaq 100 Index have all risen by over 9%, while the Dow has risen by 4.7%. However, the Russell 2000 Index has only risen by 2.52%, despite some of its constituent stocks surging, with Super Micro Computer (SMCI.US) rising by 242% and Viking Therapeutics (VKTX.US) rising by 274%.

Many companies in the Russell 2000 Index are still struggling: these companies carry too much debt, have too few fixed-rate products; revenue sources are unstable or below expectations; and management capabilities are weak.

In fact, as of March 22nd, out of the 2000 constituent stocks of the Russell 2000 Index, only 801 have risen.

The biggest loser among the Russell 2000 Index constituents so far this year is Fisker (FSR.US), which has fallen by 93% since the beginning of the year. This cash-strapped electric vehicle manufacturer is struggling to avoid bankruptcy.

Amylyx Pharmaceuticals (AMLX.US) is the second worst-performing constituent stock of the Russell 2000 Index, falling by 81% since the beginning of the year. The company's key study on a therapy for amyotrophic lateral sclerosis (ALS) failed to meet critical targets before The performance of the Russell 2000 Index depends on the Federal Reserve's policy.

At the beginning of 2024, many Wall Street traders predicted that the Federal Reserve would cut interest rates 6 times within a year, bringing the federal funds rate down to 4%.

However, now traders generally expect the Federal Reserve to only cut interest rates 3 times, by 25 basis points each time. This means the final interest rate would be between 4.5% and 4.75%