US Investors Shifting Focus to Small-Cap Stocks
US stock market investors are shifting their focus towards smaller companies, marking a significant change from the recent dominance of tech giants. This rotation is driven by falling interest rates and potential political shifts, leading to a potential 'small-cap premium'.
After 1.5 years of tech stocks, known as the 'Magnificent Seven', leading the US market, investors are now seeking better gains elsewhere. On Wednesday, tech stocks faced substantial pressure, marking the worst trading day in over 18 months. Investors are now eyeing small and mid-cap stocks (SMID caps) with strong economic moats, particularly in sectors like semiconductors and healthcare. Companies like Monolithic Power, Zimmer Biomet, Wynn Resorts, and Expedia have shown promising growth and consumer demand. This trend is reflected in the Russell 2000 index, which gained double digits on a monthly basis, unlike broader indices such as the S&P 500 and Nasdaq 100.
The shift towards smaller stocks is expected to continue, presenting opportunities for investors in sectors with strong growth potential and economic resilience. This rotation could lead to a sustained 'small-cap premium', benefiting investors who capitalise on this trend.
