Historic Gains in Small Stocks
Small company stocks bore the brunt of the economic uncertainty in 2020, but in 2021 they are making historic gains.
In the latest episode of Your Money, Leo Daprile of Gem Young Insurance and Financial Services in Canfield says Dow Jones Market Data shows the Russell 2000 index of small companies rose by 15% so far this year.
The Russell 2000 is a small-cap stock index of the smallest 2,000 stocks in the Russell 3000 Index, and is one of the indexes Gem Young considers when building portfolios for its clients, he says.
The 15% year-over-year increase is important because typically when going through a market correction “like we did this past March,” he says, “the weakest ones always take the biggest hit at first, and the strongest ones are always the ones that feel it at the end.”
Fear of the smaller companies surviving the pandemic and building up what they lost led to those companies not doing as well in the stock market, he says. A recent article in the Wall Street Journal explores how manufacturing in the United States “simply can’t keep up with demand right now,” he says.
“This is actually becoming a boon for the small-cap companies in America, especially since Biden got in,” he says. “Now that the supply chain is trying to backfill, if you will, and kept up with demand … a lot of managers are seeing that there’s potential for significant growth in a lot of these small caps, and that’s what’s been bidding up the stock price.”
As the year goes on, Daprile expects to see these companies make “tremendous earnings,” but that’s not without risk, he says.
“When you’re up 15% seven weeks into the year, you have to ask yourself the question: did they bid the price of these small-cap stocks too high already?” Daprile says. “Are they overvalued now?”
For insight on whether the stocks got too hot too fast, watch the video above.
Original Air Date: Feb. 23, 2021. Every Tuesday during the Dan Rivers show on AM570 WKBN, Gem Young President Leo Daprile hosts a radio show called Your Money. Daprile brings his vast knowledge of all things “money” to discuss the topics in language everyone can understand.
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