After rising 14.2% in the period after the US presidential election through year-end, US small cap stocks as reflected by the Russell 2000® Index have come back to earth in 2017, with just a 1% rise year-to-date and a 1.3% decline in March as of March 28.
It was against this backdrop that a group of US small cap market experts - FTSE Russell senior index research director Tom Goodwin, CBOE Options Institute director of education Russell Rhoads, Jefferies & Co. SMID Cap Strategist Steven DeSanctis and ProShares Director of Investment Strategy Kieran Kirwan - met earlier this week for FTSE Russell’s fourth annual FTSE Russell Small Cap Summit.
Some highlights from the discussion:
On the Trump administration and slowing “Trump Bump:”
“The market appears to now be pricing in what Trump was going to do versus what he is actually able to do going forward.” Steven DeSanctis
“The way the situation for small caps is being described, it sounds like an obituary. I would describe it as more of a breather. Focusing on companies that have continually grown their dividends has been a strategy that has historically outperformed in the small cap market. In particular, these companies tend to be quality companies with stable earning streams, strong fundamentals and a history of growth, making them a potentially compelling way to invest in this market.” Kieran Kirwan
On US small cap valuations:
“We are certainly seeing elevated valuations for US small caps relative to historical levels, with the price-to-earnings level for the Russell 2000 at about 28X.” Tom Goodwin
On possible US tax reform:
“The tax package really does matter for US small caps. I am worried about the impact to small caps should new legislation remove the deductibility of interest.” Steven DeSanctis
On US small cap market volatility:
“US small cap market volatility is currently at all-time lows, making me concerned about potential event risk. The only thing on the market’s radar right now is the French election.” Russell Rhoads
On the potential impact of an extended rise in US interest rates:
“Although every situation is different of course, FTSE Russell index research has shown that US small cap stocks have tended to perform positively over longer time frames during extended rate tightening periods.” Tom Goodwin
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