Small Caps Climb on Interest Rate Cut Expectations: 5 Picks

Economic Overview - Small-cap stocks have gained momentum due to declining inflation rates and soft economic data, particularly strong labor market indicators, which have increased expectations for interest rate cuts [1] - The Russell 2000 index surged 3.5% to close at 2,263.67, marking its highest level since January 2022, while the S&P 600 advanced 3.6% to close at 1,418.30, reaching a 52-week high [2] Inflation Data - The consumer price index (CPI) decreased by 0.1% month-over-month in June, contrasting with a consensus estimate of a 0.1% increase, marking the first monthly decline since May 2020 [3] - Year-over-year, CPI increased by 3%, the lowest level in over three years, down from 3.3% in May [3] - The core CPI rose by 0.1% month-over-month in June, lower than the expected 0.2%, with a year-over-year increase of 3.3%, the smallest since April 2021 [3] Federal Reserve Insights - Fed Chairman Jerome Powell indicated that the central bank may implement interest rate cuts before inflation reaches the target of 2%, suggesting a proactive approach to monetary policy [5] - Current benchmark interest rates are between 5.25% and 5.5%, the highest in 23 years, with a 100% probability of a 25 basis points rate cut in September according to the CME FedWatch tool [6] Investment Opportunities - Five small-cap stocks have been identified with strong growth potential for the remainder of 2024, all having positive earnings estimate revisions in the last 60 days and a Zacks Rank 1 (Strong Buy) [7] Company Highlights - American Axle & Manufacturing Holdings Inc. (AXL): Expected revenue growth of 3.1% and earnings growth of over 100% for the current year, with a 5.3% improvement in earnings estimates over the last 60 days [8] - Enviri Corp. (NVRI): Anticipates revenue growth of 17.4% and earnings growth of over 100% for the current year, with earnings estimates improving by more than 100% in the last 60 days [9] - Groupon Inc. (GRPN): Expected revenue growth of 1.3% and earnings growth of over 100% for the current year, with a significant improvement in earnings estimates over the last seven days [10] - BJ's Restaurants Inc. (BJRI): Expected revenue growth of 1.1% and earnings growth of 65.9% for the current year, with a 1.6% improvement in earnings estimates over the last 60 days [11] - GeneDx Holdings Corp. (WGS): Expected revenue growth of 18.9% and earnings growth of 82.3% for the current year, with earnings estimates improving by more than 100% in the last 60 days [11]