Tom Lee of Fundstrat predicts that the Russell 2000 small-cap benchmark will experience a 50% surge in 2024.

Small Cap Stocks Poised for a Big Year Ahead

Tom Lee of Fundstrat is optimistic about the outlook for small cap stocks in 2020, suggesting that Wednesday’s 2% rise for the Russell 2000 could be a preview of a strong year ahead. In an interview with CNBC’s “Last Call,” Lee pointed to several factors that he believes could propel small cap stocks higher this year.

One key factor is the current environment on Wall Street, with the Federal Reserve signaling a more dovish approach and CEOs showing increased confidence. Lee believes this could lead to an uptick in mergers and acquisitions and initial public offerings, as well as increased interest in other sectors. He stated, “With the Fed doing a dovish pause, and CEOs getting more confident — that means M & A and IPOs — and people looking at other sectors, I do think the Russell can rise 50% this year.”

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Despite the recent underperformance of the Russell 2000 compared to the S&P 500, Lee is bullish on small cap stocks going forward. He noted that the valuation for small cap stocks is back to where it was in 1999, before a period of outperformance for the group. Additionally, Lee highlighted factors such as potential increases in mergers and acquisitions, momentum in biotech, and the positive impact falling interest rates could have on regional banks, which have a large presence in the small cap index.

Overall, Lee sees the Russell 2000 as an attractive option for investors looking to capitalize on a potential market upswing. As he put it, “I think the Russell 2000 represents sort of the best of things to happen when the Fed starts cutting.” With all these factors in play, it will be interesting to see if small cap stocks can indeed deliver the substantial gains that Lee is forecasting.

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