Small-cap stocks have been on a tear this month but Bank of America Equity Strategist Jill Carey Hall thinks the rally could see a pause in the near term.
The Russel 2000 Index has rallied more than 11 per cent in the past month, outpacing the major U.S. indices over that time. In an interview with BNN Bloomberg, Hall said “small caps are no longer cheap on an absolute basis” and the next leg will require strong earnings.
Hall added that she sees “small caps offering investors better returns over the next decade than large caps, especially after a decade of underperformance.”
But the Bank of America strategist suggested staying selective for now, as she sees opportunities for outperformance from pockets of small caps, particularly value stocks that have fundamental support. She said she’d recommend avoiding highly levered stocks with refinancing risk until U.S. Federal Reserve cuts are certain.
Jordan Zinberg, the president and CEO of Bedford Park Capital, echoed a similar sentiment. In an interview with BNN Bloomberg, he said he’s seeing a “big rotation in the market” in Canada.
He said most of the strengths come from energy and materials but “there is actually been a lot of opportunity in other sectors for investors.”
Bank of America’s Hall said positioning, technicals, relative valuations and the Fed backdrop will all support the Russel 2000 in the near term, and she remains positive on the long-term case for small versus large caps.
