The modern stock market is filled to the brim with near-legendary names of titanic companies that – especially in the technology sector – practically dominate our world.
The existence of this gathering of titans is hardly surprising, given that these firms both directly provide many of the necessities of XXI-century life – our means of communicating, access to commodities from across the globe, cutting-edge tools that will hopefully make our lives easier, and veritable torrents of entertainment – but have also become not only safe but also lucrative investments.
Indeed, despite their immense size, many of these firms offer respectable return rates. Looking at the last 52 weeks alone, Nvidia (NASDAQ: NVDA) grew 218.52%, Apple (NASDAQ: AAPL) 35.08%, Microsoft (NASDAQ: MSFT) 62.38%, and Walmart (NYSE: WMT) 12.06%.
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Still, despite this bias for size and the names found on the S&P 500, the many thousands of small-cap companies remain both an integral part of a healthy economy and highly promising investments.
Indeed, last year, numerous largely unheard-of companies achieved return rates ranging from hundreds to thousands of percent, and this year, small-caps are likely to continue their march upward – by 50-60% on average, according to Fundstrat analyst Tom Lee.
The year of Russell 2,000
An important factor when it comes to the expected growth of small-cap stocks in 2024 is their price-to-book (P/B), which stands at the same levels as it did in 1999 relative to the S&P 500, per Tom Lee.
The analyst continued by stating that 25 years ago, similar numbers inaugurated a 12-year period in which smaller companies consistently outperformed the well-known captains of industry.
In fact, not only does Lee forecast that these companies could climb as much as 60% this year, but he believes that the adequate target for the Russell 2,000 index – the index that tracks the 2,000 smallest companies in the Russell 3,000 index – stands at 3,000 points, a 55.66% upside compared to current levels.
Given that the index logged a relatively lukewarm performance over the last 52 weeks – it is 2.28% in the green within the said time frame – and that it, having declined to 1,927.30, continued struggling in the first weeks of 2024, such a major upside would constitute a sharp change in trend.
Investors should ignore the first 6 months
While much of the final quarter of 2023 was dominated by a rally – evident in both stock and crypto markets – driven by broad expectations that the FED will start lowering interest rates, the final yearly inflation figures somewhat dampened these expectations.
Indeed, as of January 17, influential figures and institutions, including FED’s Cristopher Waller, ECB’s Robert Holzmann, and analysts at Morgan Stanley (NYSE: MS), believe investors will be disappointed by the pace of rate cuts this year.
Fundstrat’s Tom Lee, however, argues that despite this, the forecasts for 2024 remain bullish with a small caveat – the first half of the year is likely to be turbulent and offer a downturn as monetary policy stabilizes. This Tuesday, CNBC’s Jim Cramer also echoed this notion of a coming pullback.
As a result, savvy investors would be wise to largely disregard the first 6 months of the year, according to the expert.
Ultimately, the current trends – particularly when it comes to inflation, interest rates, and recovering corporate revenue – remain favorable for consumers, businesses, and investors, just not in as short term as was initially expected.
What of the S&P 500?
Despite the focus on the Russell 2,000, Fundstrat remains bullish on the S&P 500. In fact, the yearly target for the index of the U.S. top firms stands as high as 5,200 points. Oppenheimer recently set the same target, while some other institutions are only slightly less bullish.
Goldman Sachs, Citigroup (NYSE: C), and BMO Capital Markets, for example, set their sights at 5,100 points, while Bank of America (NYSE: BAC) believes that exactly 5,000 is a reasonable target. At press time, the S&P 500 stands at 4,765.98, having risen 19.42% in the last 52 weeks.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
