Take Profits in Small-Caps Now as Fed Gears up to Hike Rates - TheStreet

Take Profits in Small-Caps as Fed Gears Up to Hike Rates

Small-caps are on fire since the election with the Russell 2000 index surging 12%. Investors may want to take gains in those small-cap stars ahead of next week's Fed meeting.
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The market's minnows are on fire since the election with the Russell 2000 index surging 12%. Investors may want to start taking some gains in those small cap stars ahead of next week's Federal Reserve meeting, said Dr. Robert Johnson, president of the American College of Financial Services. According to Dr. Johnson, from 1966 through 2013, the smallest quintile of stocks has returned 5.8% during rising rate environments - ironically, the same return as the largest quintile of stocks. During falling rate environments, small stocks earned 28.4% compounded annually, while large stocks returned 14.4%. Historically, the small stock premium has been confined to falling interest rate environments, said Dr. Johnson. The market response to the Trump victory across all market caps has surprised nearly everyone. Most pundits were predicting a significant market drop if Trump pulled off a surprise victory. That sell-off was limited to a few hours in the futures markets on the night and early morning following the election. For instance, Dr. Johnson points out that the worst market performance from election day to inauguration day followed Obama's election in 2008 when the S&P 500 fell by 20%. The best market performance from Election Day to inauguration followed none other than Hoover's election in 1928 when the S&P 500 rose by over 13%.