One of investors' biggest concerns about the US stock market is dissipating!
The sustainability of the rebound in the US stock market in 2024 has been a lingering concern for investors, but this major worry is now diminishing. The S&P 500 Index has hit more than 30 new highs so far this year, and this wave of gains is finally starting to broaden to a wider range of stocks. The impressive surge in small-cap stocks stands out, while large-cap stocks have largely missed out on these gains over the past week. According to UBS, as long as inflation remains stable, the Fed starts cutting rates, the economy continues to grow, and profit growth expands to small companies, the breadth of the rebound in the US stock market should continue to expand. Future earnings for small-cap stocks are expected to improve significantly, which will alleviate some investors' bear market concerns
The sustainability of the rebound in the US stock market in 2024 has always made investors fearful, but now this major concern is diminishing.
The S&P 500 Index has set more than 30 new highs so far this year, and this wave of gains is finally starting to broaden to a wider range of stocks. In other words, the rally driving the S&P 500 and the Nasdaq 100 Index is no longer limited to just a few large tech stocks.
This is a major victory for the bulls, as the lack of participation by small companies and the historical concerns about the concentration of the "Big Seven" were major worries for people in this rebound that began in October 2022.
After the US June Consumer Price Index (CPI) came in lower than expected last week, the market expects the Fed to cut interest rates, and the rebound in small-cap stocks last week is reaching historic levels.
According to data from Bespoke Investment Group, the Russell 2000 Index has seen gains of over 1% for the fifth consecutive trading day, something that has only happened four times in the history of the index since 1979.
The significant rise in small-cap stocks is impressive, while large-cap stocks have largely missed out on these gains over the past week.
UBS points out that if four conditions are met, the rotation of small-cap stocks may continue, which is healthy for the broader market.
In a report on Tuesday, UBS stated that as long as inflation remains stable, the Fed begins to cut rates, the economy continues to grow, and profit growth expands to small companies, the breadth of the US stock market rebound should continue to expand. However, for the trading of small-cap stocks to be successful, many things need to go smoothly, which has led UBS to maintain a certain level of caution about its recent gains.
Shannon Saccocia, Chief Investment Officer of Neuberger Berman Private Wealth, expects significant improvement in the earnings of small-cap stocks in the future.
Ryan Detrick, Chief Market Strategist at Carson Group, also sees sustainable prospects for the rise of small-cap stocks. He expects small-cap, mid-cap, industrial, and financial stocks to take over from large-cap tech stocks in the second half of the year, which is a very normal occurrence at this stage of a bull market.
This shift will ultimately alleviate some investors' concerns about the narrow breadth of the US stock market rebound.
Detrick said, "In a healthy bull market, you want to see broader participation. Never forget, the life of a bull market is rotation, and we expect this to happen in the remaining time of this year."