Bottom Line for Small-Cap Stocks
The rhetoric has soured on small-cap stocks, and that pessimism has materialized in the form of a severe slide in the value of the Russell 2000 Index. Even Janet Yellen and Federal Reserve Governor Daniel Tarullo have joined the discussion, suggesting last week that valuations for small caps were too high for our own good. That was the day after the index closed under the 200-day average, and the day before the bears put some distance between the long-term moving average and the Russell 2000.
While it’s all unnerving at first glance, far more often than not, the right time to be bullish is when everyone else is bearish. We were due for a pullback, and we got one. End of story. The economy is still in growth mode, and earnings remain on the rise. Despite Yellen’s concern — perhaps because Yellen made a point of voicing an oddly-specific concern — we should take it as a contrarian clue that small caps have already hit their short-term bottom.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.