The Russell 2000 (^RUT) has risen by more than 10% in the last five trading sessions, marking the longest streak of gains for the small-cap index since April 2020. MAI Capital Management chief equity strategist Chris Grisanti joins Catalysts to discuss the growth of small caps and XXXX.
Grisanti believes that small caps are still "underpriced," despite having the Russell 2000 having "its biggest move in terms of standard deviations that we've seen in more than 30 years over the last week." He calls the rally a "convincing reversal" and believes that its growth does not rely on the Federal Reserve cutting interest rates.
"It would scare me if the Fed cut rates... the Fed cuts rates not to give you a break, but because bad things are starting to happen. The economy is starting to slow, earnings are starting to get lower. So if the Fed cuts, they're seeing something that's scaring them."
He adds that small-cap stocks are cheap buying opportunities: "I don't think it's too late to initiate positions if you haven't already."
He continues, "There is terrific cash flow at places like Nvidia (NVDA) and Microsoft (MSFT) and Amazon (AMZN). I'm not saying this is not the internet bubble, but the difference between the way they perform and what other cash flow-producing companies has performed is really disparate. That's what I'm saying, is they've been rewarded too much." Grisanti points to mutual funds and ETFs that focus on small caps as a great place to start for investors looking to get in on the trade.
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