Small-cap stocks lagging their larger brethren may also be in the cards for 2018.
Despite an improving U.S. economy, which theoretically should be good for U.S. focused companies, small-cap stocks are winding down a lackluster year. The Russell 2000, the broadest measure of small-cap equities, is up a mere 13% this year. On the other hand, the Dow Jones Industrial Average and S&P 500 have gained 24% and 18%, respectively, on the year.
Strategists have cited lofty valuations on small-caps in the wake of President Trump taking office as the main culprit for the relative under-performance in 2017. Earnings growth for the group also hasn't blown Wall Street away. Jefferies points out in a new note that earnings growth for Russell 2000 companies should have been 16% this year with GDP topping 3%. Instead, earnings for the small-cap group are only pegged to have risen 5%.
The mood on Wall Street for small-caps ahead of the near year is equally as glum.
Said Bank of America researchers in a note,"We continue to favor large caps over small caps, where the latter typically lag at the end of bull markets and are expensive, highly levered, and could be hurt most by tighter credit conditions, higher volatility or a more hawkish Fed."
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