Small-cap stocks may still not be cheap enough in the wake of February's vicious market correction

With the market off from its all-time highs hit in late January and earnings growth rising, the forward price-to-earnings multiple on the Russell 2000 has come down significantly points out Jefferies. The Russell 2000 trades at 17.9 times forward earnings estimates, the lowest since Apr. 2016. 

Even still, that's unlikely cheap enough for those looking to get into high growth small-caps at a reasonable price. Based on Jefferies' analysis, the Russell 2000 trades well above its long-term average valuations across the board (see table below). The Russell 1000 is no bargain, either.

And in fact, the nosebleed valuations on small-caps -- supported by optimism around the impact to the U.S. economy from tax reform -- suggest that the market correction has not fully run its course. 

"Absolute valuations are still sky high with small and large trading around the 90th percentile on our valuation model -- this becomes more of a concern with rising interest rates," Jefferies writes.

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