Small cap stocks are climbing, a departure from last year’s dip as investors channeled money into larger multinational companies poised to benefit from global economic growth. This according to a recent article in The Wall Street Journal.
The article reports that, in recent weeks, data suggests that worldwide momentum might be faltering. “Growth in the eurozone appears to have slowed in the first quarter of the year,” it says, adding that Japan’s economy showed a contraction during the same period, ending the country’s longest growth period in 28 years.
A brighter domestic outlook, however, has infused U.S. investors with optimism, particularly for small-caps, which tend to benefit more from corporate tax cuts. The article quotes Randy Gwirtzman, co-manager of the Baron Discovery Fund: “We really think this environment can continue, and valuations for companies aren’t out of the ordinary in terms of being overly expensive.”
Investors are also betting that small caps are less likely to suffer from trade tensions than larger domestic companies, according toWSJ, and Commerce Department data is showing an upward trend in consumer spending, (despite higher gasoline prices) which is boosting smaller businesses.
However, the article notes, “Not all analysts are convinced that small caps can sustain their rally,” adding, “With investors becoming increasingly bullish, small caps could run in danger of becoming a crowded trade, something that outperforms the broader market until it suffers a sudden reversal.”