The Russell 2000 (^RUT) has risen several times this week as investors prepare for an exit from Big Tech. Catalysts welcomes Brian Nick, Managing Director at NewEdge Wealth, to discuss the moves in small caps and how investors should position their portfolios as Wall Street looks to the second half of the year.
“We know that our clients don’t have enough small caps where our advice applies, so these things can be quite powerful. There seems to have been a bit of a rethink in the last two days. People are exhaling, taking a breather and maybe interest rates are rising again, which is not positive for small caps,” Nick explains.
With the Russell 2000 Index beginning to moderate from last week’s gains, he added: “We’re going to be more cautious on growth going forward, so the next move is just as likely to be back to underweight as it is back to overweight.” Nick believes small-cap earnings expectations for 2025 are “extremely aggressive,” and they need strong fundamentals and better growth data to meet them.
“The strategy we’re using is, rather than adding exposure to the Russell 2000, we’re adding exposure to the S&P 600 (^SP600), which is a slightly different benchmark; it’s a narrower range; we need to be more profitable… and we tend to be more focused on higher quality earnings,” Nick said.
NewEdge Wealth notes that if the Fed anticipates a soft landing scenario, it will “likely recommend longer-term, higher-quality bonds.”
“But what we’re most concerned about is a slowdown in which bonds are doing relatively well and stocks are not doing as well. And that’s the hardest situation for clients to prepare for because a lot of investors are overweight in equities. A lot of people have been overweight in equities in their portfolios for the past year, five years, 10 years, whatever the time period is. Because we haven’t really seen yet a sustained, prolonged downside scenario where interest rates are falling but stocks are also falling.”
To learn more about expert insights and the latest market trends, click here to watch this full episode of Catalysts.
This post was written by Melanie Leal