Source: Jin10 Data
Analysts predict that the e-mini russell 2000 index will rebound for about 10 weeks, starting in August, and finally increase by 40%.
As the technology sector declines, small stocks are taking over the summer stock market.
Tom Lee, co-founder of Fundstrat and known as the 'Wall Street wizard', stated that if history is any indication, focusing on small-cap stocks may see a growth of 15% or more in August.$Russell 2000 Index (.RUT.US)$In August, there may be a growth of 15% or more for those who focus on small-cap stocks, according to Tom Lee, co-founder of Fundstrat and known as the 'Wall Street wizard'.
The Russell 2000 index has already seen significant growth throughout July and has climbed over 10% as of Thursday's close.
Lee said confidence in the upcoming Fed rate cuts (expected to begin in September) is driving the rebound in small-cap stocks. These companies have more debt burden and will benefit most from lower borrowing costs. Conversely, persistent high interest rates are thought to be one of the reasons for the poor performance of the Russell 2000 index in recent years.
Lee noted that the small-cap index is gradually rising rather than experiencing sharp, unsustainable growth. He pointed out that the Russell 2000 index rose 1% on 10 of the past 11 trading days.
He said, "This has happened nine times since 1979, and even in bear markets, we will see 100% growth in a few months. The average increase in the 12 months after this scenario occurred was 40%."
Lee previously predicted that the rebound of the Russell 2000 index would last about 10 weeks and reach a final increase of 40% beginning in August. Now his prediction is more specific, emphasizing that August is a particularly significant period of growth.
"In August, small-cap stocks may see growth of more than 15% as their previous performance was quite lagging. The trend of the past two weeks indicates that small-cap stocks may be at the beginning of a significant uptrend," he said.
In addition to the interest rate factor, Lee also mentioned the prospect of the upcoming US election, which would help drive the rise of the Russell 2000 index.
Lee pointed out that the gambling market shows that Trump may be re-elected as president, and investors may be attracted to small-cap stocks because Trump's policies may promote relaxed regulation, mergers and acquisitions, and the development of regional banks.
On the other hand, as the hype around artificial intelligence cools down, Lee believes that investors are turning to investments outside of large-cap stocks, and investors who focus on free cash flow or P/E ratio will find small-cap stocks more attractive.
However, not everyone agrees with Lee's optimistic view. Despite the surge in the Russell 2000 index, some on Wall Street are skeptical about the sustainability of this rebound, given the poor earnings, revenue, and profit margins of small-cap stocks.
In addition, Barclays Bank questions the potential impact of Fed rate cuts on small-cap stocks, noting that historically, small-cap stocks have not performed well when monetary policy first loosens.
Editor / jayden