ETFs to Ride the Small-Cap Comeback Wave

Group 1: Market Outlook for Small-Cap Stocks - The likelihood of a Fed interest rate cut is increasing, which positions small-cap stocks for a potential comeback as investors rotate into sectors beyond technology [1][6] - The Russell 2000 Index has surged approximately 3.1% since last Friday and is up nearly 8.9% in August, prompting strategists to revise their outlook on small-cap stocks [2] - Analysts and economists are upgrading their views on small-cap stocks, with some moving from less attractive to neutral [3] Group 2: Performance Expectations - The Russell 2000 is expected to outperform large-cap stocks in the near term, with forecasts indicating that small-cap and low-quality stocks may extend gains due to lower rates relieving balance sheet pressures [4] - Small-cap stocks are believed to be well-positioned for gains, supported by a sector rotation away from large tech companies [5] Group 3: Interest Rate Impact - Expectations for a September interest rate cut have risen to 87.2%, up from 75% prior to Powell's speech, with even higher probabilities for cuts in October (93.8%) and December (98.8%) [6][7] - Small-cap stocks, which are heavily dependent on external borrowings, could significantly benefit from lower interest rates, allowing for increased capital availability and cheaper refinancing of existing debt [8] Group 4: Economic Sentiment - Small-cap companies, being more domestically tied, are poised to outperform as the economy improves, with several financial institutions upgrading their S&P 500 forecasts based on resilient earnings and a supportive macro backdrop [9] - The economy is expected to rebound from the current slowdown, with anticipated rate cuts and other fiscal measures potentially accelerating growth to 3% next year [10] Group 5: Investment Options - Investors can consider various ETFs for increased exposure to small-cap stocks, including iShares Core S&P Small-Cap ETF (IJR), iShares Russell 2000 ETF (IWM), Vanguard Small Cap ETF (VB), Schwab U.S. Small-Cap ETF (SCHA), and SPDR Portfolio S&P 600 Small Cap ETF (SPSM) [11] - IWM is noted for its liquidity, while SPSM has the lowest annual fees at 0.03%, making it suitable for long-term investing; IJR has the largest asset base at $85.35 billion, and VB has outperformed others with gains of 1.85% over the past month and 5.06% over the past year [12]