Thinking Big and Looking Small
Small-capitalization stocks are good bets to lead the next bull market. But any rally they experience in this bear market shouldn’t be trusted.
As typically happens during the throes of an economic recession, market veterans have begun lining up riskier small stocks, knowing these names offer the greatest potential return once the economy stabilizes.
But few investors have pressed the buy button yet. That’s because even if the economy suddenly turns around, the damage caused by the credit crisis will continue to place a premium on safety until the market has fully repaired itself.
“As we get really comfortably wrapped around the blanket of defensiveness, investors will continue to pull away from riskier plays, but if you look out 12 months or so, larger companies don’t look like leadership stocks,” said Satya Dev Pradhuman, research analyst for Cirrus Research and author of “Small-Cap Dynamics: Insights, Analysis, and Models.”Usually considered more economically sensitive, small-cap stocks have historically been seen as good indicators of where stocks overall are headed....MORE