- Zenith Newsletter
- Posts
- We told you so
We told you so
Small caps are rallying while the big indexes falter
In partnership with
Ease into investing
“Ease” being the key word. With automated tools like portfolio rebalancing and dividend reinvestment, Betterment makes investing easy for you, and a total grind for your money.
Small caps are rallying while the big indexes falter
Remember when we said this at the end of June:
….when does it make sense to invest in small caps? We can’t provide advice on that topic but we can explain some likely reasons why an investor would invest in small caps now or in the future. The first reason is diversification. There will very likely be a period of time when small caps experience more growth than the large indexes. Once that period comes, having some of your portfolio allocated to small caps will allow you to experience those gains. For a long term investor, timing the market is very low on the priority scale. A long term investor is not overly worried about missing out on the larger gains you would experience now if you were only investing in the S&P 500, because one day these same outsized gains will likely occur for those with money allocated into small caps.
If you’ve been paying attention to the market, you’ve noticed small caps have rallied more than 11% in just the past 10 days. At the same time, the Nasdaq has fallen 4.24% and the S&P 500 lost 7% from their respective highs. This scenario has played out exactly how our June article explained. When the main indexes are seeing losses, the Russell 2000 allocation can help soften the blow by providing some gains to offset S&P and Nasdaq losses.
Another prediction that came true was that the Fed is expected to cut rates; which has been the catalyst for the small cap rally of late. The stock market leads the actual economy, so it’s not unusual for the market to be ahead of the actual rate cut. Still, there’s a chance the data changes and there won’t be a rate cut this year—so there is still a chance this rally will stall or even reverse before year’s end.
Credit card debt is rising
Philadelphia Federal Reserve data indicates the share of credit card balances that are passed due reached the highest level since the bank started tracking the data in 2012. More consumers are holding off on opening new credit compared to this time last year. Auto loan defaults have increased this year as well. These finding clearly indicate that many consumers are still under pressure; presumably from the rising costs of—well—pretty much everything since the 2020.
This week’s quiz
Question 1
What is the current target rate range for the Federal Funds Rate?
A. 5.25-5.50%
B. 5.0-5.25%
C. 5.50-5.75%
D. 4.75-5.0%
Question 2
Which index includes the largest number of individual stocks?
A. Russell 2000
B. S&P 500
C. Dow Jones Industrial
D. Nasdaq Composite
Work with us
Making more than $100K per year? Come talk to us. We help H.E.N.R.Ys make financial freedom inevitable.
Answers
Question 1
Answer: A
The current Federal Funds Rate is between 5.25-5.50% currently.
Question 2
Answer: D
As the names suggest, the S&P 500 index is composed of the 500 largest companies in the US while the Russell 2000 is composed of 2,000 small cap stocks. The Dow Jones Industrial, which has no number to denote its size, is composed of 30 large companies. The correct answer and the largest index in terms of number of stocks is the Nasdaq, which includes more than 2,500.
It is a mere futile process to exchange one set of commodities for another, if the parties; after this new distribution of goods has taken place, are not better off than they were before.
Reply