Small-cap stocks are on the cusp of a turnaround and could rise as much as 50% this year, according to Wall Street analyst Tom Lee of market research firm Fundstrat.
Lee, who is known as one of Wall Street’s biggest bulls, is calling for the small-cap Russell 2000 index to rise as much as 50% in 2024 and top 3,000 for the first time ever.
Small cap stocks are likely to receive the biggest benefit once the U.S. Federal Reserve begins lowering interest rates, which is expected later this year.
Lee, whose view is shared by many people on Wall Street, likes small-cap stocks because their
valuations are cheap compared to larger stocks listed in the benchmark S&P 500 index.
Stocks of companies with small market capitalizations are currently valued at 11 times earnings, says Lee. That’s much cheaper than the S&P 500’s average multiple of 21 times earnings.
The leading analyst adds that the valuation difference between small and large-cap stocks is similar today to 1999, when small-cap stocks began a 12-year stretch of outperformance that began when the technology rally peaked.
Lee also notes that the Russell 2000 index is comprised of biotechnology stocks, which have been gaining momentum, as well as regional banks that are likely to benefit as interest rates move lower.
So far in 2024, the Russell 2000 index has gained 3% versus a 10% increase in the S&P 500 index.
