The Russell-2000 is the best measure of small caps and has the last two months outperformed the S&P 500 by 2-1. The last 10 months has been amazing for Russell 2000 which is up 37%. That is 12% better than S&P 500 which is up (only) 25%.
Small cap stocks have outperformed large cap stocks in seven of the past ten years by 40 percent. The earnings for the small-cap stocks rose by 9% (Russell 2000). S&P rose only 5% over the last twelve months.
When bond yield are rising, the history tells us that the small-cap stocks are outperforming. We saw Microsoft buying Nokia for $7 billion, but those two are blue chips stocks. Microsoft is not explosive enough. Small-cap stocks are, and they are in a great position for takeovers.
When the rumors for takeovers are in the market, the small-cap stocks prices are going wild. Now, it is a good time for many small-cap stocks to sell. It seems to be a good invironment now. Money is cheap now, but everyone know that the interest rate are rising, which means it will be more expensive to buy a company next year.
Many companies have been cautious with their money during the recesssion. They now have a stockpile of $2 trillion! That`s enough money pay some of the federal deficit in a few seconds. They can use the money to buybacks, dividende or M&A.
The thing is that companies want to grow, and that is fast. In addition; investors want to see the stockprice go up to heaven. But, it`s difficult to grow organically. That`s why Google bought Youtube. That`s why Facebook bought Instagram. They have both been growing, and the investors doesn`t cry over this kind of strategy.
Don`t forget the private equity firms that have hoarding cash now. They have about $1 billion in cash. They must spend $200 million the next months because that`s the rules. If they don`t do that, they must pay the money back to the investors. As you know; they will buy small-cap stocks.
I am looking for companies with strong financials. I am looking for companies that have a huge growth potential and I am looking for companies that is innovative, because that is attractive to the people looking for a takeover.
S&P 500 and the Dow rose yesterday as Republicans and Democrats in Congress showed early signs of a possible break in the impasse. The shutdown is in it`s ninth day, and President Obama invited lawmakers from both parties to the white house to discuss the government shutdown and raising the debt limit.
The VIX rose to 19,60 yesterday. A level above 20 is normally associated with investors anxiety and concern about the near-term direction of the market. Today I will look for these news: Unemployment Claims at 8:30am, 30 Year Bond Auction 1;01pm.
The volume was light on NYSE yesterday. 5,9 billion shares was changing hands. I will sit on my hands now until october 17. Just wait and see what`s happening. Russell 2000 was down 0,36% yesterday. Every time Russell 2000 breaks the 50 MA it rebounds. Will that happen again? Remember that we are at the all time high too. Take a look at the chart below:
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