Housing Market and Stock Market Forecasts

Russell 2000 Forecast

The Russell 2000 Forecast

Yet another element to explore in stock predictions is small cap stocks. There are different definitions of what a small cap stock is.

We might call this the group between $300 million and $2 billion of market capitalization. One advantage of buying small caps is that there are fewer shares and often lower stock prices. You can own them and you’ll own more of a company.

This compares nicely to large caps on the Dow Jones or S&P (e.g., Fang stocks) where you can’t buy many shares and the upside per share doesn’t look so good.

The New Economy

Economists believe that we’re on the verge of a new consumer and business marketplace. There’s a shift away from travel, big entertainment, restaurants etc. to other types of businesses that can survive Corona Virus declines and perform well online.

This means a big shift to online business and some of these small caps have better balance sheets and are ready to evolve into this new sales environment.

One more characteristic that may support small caps, is government action against the monopolies. It doesn’t seem like there is an appetite for managing the monopolies including Google, Facebook, Apple, Microsoft, Amazon, Oracle, and other Fang level stocks. But at some point, the US government and other governments will have to protect their economies from these market controlling companies. It’s only a matter of time as protectionism sentiments grow.

Such a move to put competition back into the market would definitely give small businesses a big opportunity to grow. Some of them will be very investible.

Russell Index (courtesy of Yahoo Finance)

The May 2020 Market Shift

There seems to be a shift in the stock market lately. While the Dow Jones Industrial Average, S&P 500, and NASDAQ have seen a euphoric rise with the trillion dollar bailout funds, they may be running out of momentum.

Despite the gloomy economic outlook, money was poured into the majors as the best safe haven. Small caps were largely ignored. In fact, the opinion is that small and medium sized businesses were in for a very rough ride due to lost sales and an inability to access rescue loans and grants.

But now, focus is shifting to small caps, beyond the S&P small caps to the Russell Index. With business reopening, investors may feel that some of these might come out of the recession well and its drawing in some last minute new investors who don’t want to lose out on the big turnaround. The key reasons for small cap stock price growth could be due to a new type of consumer appearing, and potential new Federal aid money aimed at small business.

Money from the majors may start moving into specific small caps to land some of these prizes.

The Russell 2000

The Russell 2000 index is a gauge of the 2000 smallest market cap stocks in the Russell 3000 index. There is also a Russell 1000 index. The 2000 index seems to be a better gauge of the real economy and of how small businesses are faring.

In this video, the Motley Fool’s Brian Richards talks about why Russell Index stocks might be a wise choice in general. And currently, these stocks might offer the best stock price growth potential.

The Current Recession

This recession is deflating the Russell stocks given the outlook and investor risk aversion. That may mean this could be the right time to find the best stocks in the small cap sector.  If you’re investing for the long term, researching, comparing, and buying specific high quality small caps might be the best move for the 6 month, 1 year, 5 year and 10 year forecast period.

Russell Index Top Gainers

The whole point to investing in the Russell, is to find individual company stocks that will be in need in the post covid period, and will survive this recession.

This chart from Barcharts (you can access the full chart at: barchart.com/stocks/indices/russell/russell2000

Russell Index Top Gainers courtesy of Barcharts.com

The Corona Virus pandemic is far from over. A second wave could send  stock prices downward, perhaps as the second dip in the W recovery. And this fall season raises yet another worry about the return of the pandemic.

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