But in the wake of the financial crisis interest rates hit rock bottom. This left the Fed with no way to add extra liquidity to the markets without printing extra money – which it did, and still does to this day.
Critics say this makes it difficult to tell whether stocks are doing well because of a healthy economy, or because of easy money. However, a large consensus also agrees that without some QE, the recession would have been a lot worse.
The only way to completely beat the uncertainty – in the markets and in your wallet - is to pull out of the stock market altogether. But we like to play the market, so instead we have to find ways to minimize risk. One of the ways this can be done is through diversification. By ensuring your portfolio includes investments across multiple industries, markets, and types of companies, you lower the risk of losing too much on one bad call.We decided to search among small cap stocks for investing ideas, with the hope that just the right amount of inflation would encourage these smaller businesses to spend and grow. We began by screening for positive sentiment from institutional investors, demonstrated by significant net institutional purchases over the last quarter, representing at least 5% of share float. This indicates that hedge fund managers and mutual fund managers expect these stocks to outperform going forward. Next we narrowed down our list by only looking at small cap stocks with prices below $5. We were left with six stocks on our list. Can QE and changing inflation rates help them outperform in the future? Click on the interactive chart below to see data over time. Do you see investing opportunities in these small cap stocks? Use the list below as a starting point for your own analysis.