|Day's Range||130.80 - 130.80|
(Bloomberg) -- Smaller U.S. companies, which have been lagging behind their larger counterparts in the stock market for three years in a row, appear to be regaining favor and could take the lead next year.Among five strategists surveyed by Bloomberg, four expect small-cap stocks to outperform in 2020. Steven Desanctis at Jefferies, in particular, forecasts the benchmark Russell 2000 to rise 7% to 1,750 through next December. That’s higher than the 5% increase that the firm predicts for the S&P 500, a counterpart gauge for large-cap stocks.While not a huge amount, better gains would mark a reversal from the past three years, when the Russell 2000 trailed the S&P 500 annually in a streak of sub-par returns not seen since 1998. Small-caps have started picking up momentum in recent months as optimism over trade talks and the economy helped restore appetite in a group that by some measure is trading at a 18-year low relative to large-caps.“Small-caps could be the place to be,” Dan Veru, who helps oversee $2 billion as chief investment officer at Palisade Capital Management, said in a telephone interview. “You’ve seen the underlying strength of the economy. If we do in fact get a trade deal, that’s going to make those more U.S.-centric companies much more exciting.”To be sure, with the Russell 2000 climbing 21% in 2019, the return is far from disastrous. But in a market where the S&P 500 is up 25%, it looks less stellar. Smaller companies lost their allure as profit slumped the most since 2009 and frequent recession fears drove investors into the safety of larger firms. The pendulum may swing back in their favor in 2020 as economic indicators from truck orders to manufacturing are poised to turn the corner, strategists say.“We expect small caps to outperform large caps in the coming months as we shift from ‘Downturn’ to ‘Recovery’ in the U.S.,” Jill Carey Hall, a Bank of America strategist, wrote in a note last month. She forecasts the Russell 2000 will beat the bank’s projected 5% return for the S&P 500 next year.There are signs that sentiment toward the sector has been improving in recent months. After positioning defensively for much of 2019 and fleeing exchange-traded funds tracking smaller companies, investors have come back to the strategy. Small-cap ETFs have seen inflows in three of the past four months and are on pace for net inflows this year -- albeit their smallest since 2012. Overall, investors have added $3.8 billion to the funds in 2019, the data show.Still, not everyone shares the positive view on small-caps. Ned David Research continues to favor large companies into next year, saying the group is more vulnerable to downturns should the 10-year economic expansion unravel.Here’s more on what strategists are saying about the sector’s outlook:BofA Head of U.S. Smid Cap Strategy Jill Carey HallBank of America recommends owning small caps vs large caps in 2020, a reversal from this year’s positioning.Hall said one key indicator to watch is the Institute for Supply Management manufacturing index, because it’s the most correlated with small-caps. Even as the measure contracted for a fourth straight month in November, BofA sees “multiple signs the ISM could be troughing,” she wrote, citing rebounding truck orders, improvements in the OECD Composite Lead Indicator, and the bank’s own industrial momentum indicator.BofA also holds the view that “globalization has peaked” and capital markets will undergo a shift toward “local” from “global” as companies work to reduce their exposure to the trade war with China. In a parallel rotation, investors will prefer value over growth stocks as earnings growth picks up, strategists noted. That tends to benefit small caps, which have a larger weight in value than large caps, Hall said. She cited cyclical sectors like industrials as having the most upside.RBC Head of U.S. Equity Strategy, Lori CalvasinaThe bank upgraded small caps to a modest overweight from neutral previously. Calvasina said the group continues to be “deeply undervalued” relative to their larger peers, with the gap sitting more than 1 standard deviations below the long-term average.Asset managers have taken notice as Russell 2000 futures positioning has started to “turn up meaningfully,” she said, citing data from the Commodity Futures Trading Commission. “Note that the re-engagement is happening pretty quickly, and it’s possible that we’ll be back to past peaks on this indicator fairly soon,” Calvasina wrote.The strategist noted that small-caps tend to move with the Chicago Fed National Activity Index (CFNAI), Cass freight shipments, and the yield curve. The CFNAI has started to show signs of improvement, the annual decline in Cass freight shipments has stopped worsening, and the yield curve has steepened, all signs that economic activity might be firming, she said.Jefferies Smid Cap Strategist, Steven DesanctisAs investors await developments on the trade front, Jefferies assumes “something gets inked in ‘20 ahead of the election,” DeSanctis wrote. However, regardless of trade news, the strategist sees the economy growing 2.5% next year and the Fed standing pat on rates. Economists surveyed by Bloomberg forecast 1.8% in real GDP growth in 2020.An accomodative Fed, better growth, and a weaker dollar will more than offset potential market volatility stemming from “lots of DC drama,“ the strategist wrote. He upgraded materials to overweight while warning that utilities may be the most expensive group in the small-cap space, with limited earnings growth ahead.Ned Davis Research, Chief U.S Strategist Ed ClissoldSmall-caps are trading near their cheapest level relative to large caps in 18 years, so there is potential for a mean reversion, strategists led by Clissold wrote in a note last week. However, they cautioned that a “mature” economic cycle doesn’t favor small-caps.“Our macro team’s expectation for the expansion to continue deep into 2020 means that the economic cycle will continue to favor large-caps,“ they wrote. NDR forecasts 1.8% real GDP growth next year.What Bloomberg Intelligence Says:Additional boosts to risk appetite in the form of further interest-rate cuts or solutions to longstanding policy headwinds are likely necessary to drive small-caps back into a leadership position over the S&P 500, in our view. While relative valuations for the size are certainly attractive, low multiples in isolation aren’t enough of a reason to chase risks and must be accompanied by some positive catalyst to propel the index above previous highs.We look to a bottoming in the ISM manufacturing index and a narrowing of high yield spreads back toward 2018 levels as additional confirmation of a lasting Russell 2000 rally.-Gina Martin Adams, Chief Equity StrategistSee Also:Airbus Secures Lead Over Boeing as 737 Max Weighs Into 2020S&P 500 Melt-Up Is So Hot It’s Making Cheerleaders Into Skeptics\--With assistance from Vildana Hajric.To contact the reporter on this story: Tatiana Darie in New York at email@example.comTo contact the editors responsible for this story: Catherine Larkin at firstname.lastname@example.org, Lu Wang, Richard RichtmyerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Smaller U.S. stocks could be set for a big run higher into the end of the year, according to Wall Street.A combination of improving economic data, bullish technical signals and a seasonal effect could give a boost to the shares, which have lagged their larger peers for much of the last year, said strategists from Tallbacken Capital Advisors LLC to Saxo Capital Markets Pte.“The technical condition on the Russell 2000/S&P 500 price ratio continues to push higher after several quarters of severe decline,” Tallbacken CEO Michael Purves wrote in a note Monday. “If risk is on into year’s end, we won’t be surprised to see the relative performance continue.”The Russell 2000 Index -- a benchmark for U.S. small caps -- climbed 2.1% Monday to its highest since October 2018, outperforming the broader S&P 500 Index which rose 0.8%. The gauge of smaller companies was about 7% below its all-time high as of 9:50 a.m. in New York Tuesday, while the S&P 500 traded at a fresh record.Improving DataA raft of good economic data last week, from manufacturing to consumer sentiment, may be benefiting the Russell, according to Kay Van-Petersen of Saxo Capital Markets in Singapore. Smaller companies are often seen as closely linked to the domestic economic cycle.The improved performance in the small-cap index could also be coming from hopes of mean reversion versus bigger stocks, or even a short squeeze, Van-Petersen added.Read: Small-Caps Spur Value Trap Warnings Amid Worst Profit Since 2009Evercore ISI technical analyst Rich Ross sees about 10% short-term upside for IWM, an iShares exchange-traded fund that tracks the Russell 2000. The ETF has broken a year-long “stubborn” technical resistance level, with breadth expanding -- a bullish sign -- he wrote Monday.Seasonal MoveMeanwhile, Tallbacken’s Purves noted the median December performance for the Russell 2000 is a 2.5% gain, in data going back to 1979, and that about a quarter of those months saw a return of more than 5%.“Of course, there are plenty of negative Decembers for the Russell 2000, and some can be sharp,” he said. “But if risk is on, there is a good chance for it to continue to gain meaningful ground into the end of the year and perhaps a lift higher in January as well.”(Updates markets in fourth paragraph. An earlier version corrected median Russell 2000 gain in eighth paragraph to 2.5%.)\--With assistance from Divya Balji.To contact the reporter on this story: Joanna Ossinger in Singapore at email@example.comTo contact the editors responsible for this story: Christopher Anstey at firstname.lastname@example.org, Cormac Mullen, Ravil ShirodkarFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Wall Street's main indexes climbed on Friday, as concerns over global growth were allayed by largely upbeat U.S. jobs report and data out of China that showed factory activity expanded at its fastest pace in more than two years. The tech-heavy Nasdaq hit a record high for the first time since July, while the benchmark S&P 500 notched its fourth record high this week.
S&P500; closed Monday at historical highs, adding 0.55% on the day close. Both expected new Fed interest rates cut and possible US-China trade deal served as key drivers of recent market growth impulse. President Trump, in his Twitter, did not manage to avoid this event, attributing these merits to himself.
As we near the end of October 2019, a very interesting price setup is taking place across many of the US market sectors recently. We only have a total of about seven trading days left in October 2019 and the Financial Sector ETF is rolling over with what appears to be an Engulfing Bearish price pattern near price channel highs. Additionally, the tech-heavy NASDAQ (NQ) has been mostly weaker compared to the ES and YM.
We’ve been writing about the broader US stock market for many months – highlighting the Pennant/Flag formations that have continued to set up since early 2018. Sometimes, the keys to really understanding what is transpiring behind the scenes in the US markets is to pay attention to various market segments and to consider applying some “outside the box” thinking.
Thursday, investors can expect the weekly initial jobless claims figures, as well as existing home sales for the month of August.
Outspoken former White House Communications Director Anthony Scaramucci claims the president is 'unhinged' and in 'steady decline.'
Still, we believe the energy sector is setting up another great trade opportunity for skilled technical traders. Watch how this sets up below $46 and watch for deeper price moves below $45. Once the momentum base is set up, the upside price move should be very clean and fairly quick.
Stocks actually spent most of the session under pressure, but a late session rally helped the S&P; 500 and Dow erase those early losses. The late surge was fueled by a recovery in industrial, energy and health care stocks. Higher U.S. Treasury yields helped bank stocks post solid gains.
The US session keyed off with a Trump tweet and yet another defiant message that gave us no indication the respective Xi-Trump camps are anywhere near to forging a deal. But the tweet set a risk-off tone in markets, and this was then given additional tailwind by a shocker of an ISM manufacturing print in the US, but also in Canada.
With the loss of confidence in the outlook for Corporate America, thanks mostly to President Trump's trade war against China, investors may rush to the exits soon.