Small-cap companies, as well as financial stocks, look immensely promising at the moment. This is in view of the prevailing market conditions. The market sell-off phenomenon affects small-cap stocks too, even though these are publicly-traded companies with a market capitalization below $2B USD. The group of these small-cap stocks experienced an 11% fall from the highs in the connection territory as stated by Tom White, the director of TradeWise. The latter is TD Ameritrade’s options-based trade advisory company and affiliate.
The Market Scenario
Consider the present market scenario to better understand why small-cap companies promise a lot of opportunities to potential investors. Amidst the growing global trade tensions and traffic concerns, investors usually turn their attention to domestic small-cap companies. Such firms source about 85% of their revenue domestically according to White. The director of TradeWise was speaking during an interview with CNBC, talking about his views on small-cap firms and financial stocks.
In addition, this segment of the market does not have a huge exposure in the international circles, which does away with many issues that affect the market as a whole. This turns the tide in their favor, making such companies stand out from the rest. This is in stark contrast to the situation for large-cap stock companies which usually have a high international exposure.
Furthermore, financial stocks are down more than the small caps. These might actually offer greater promising opportunities to the investors according to White.
The economic data is solid in the view of White. He believes that loan growth and banks are starting to pull back a bit. The rise in interest rates over the last several weeks will also be an important factor to consider. The biggest key will be the comments we will hear out of these companies for the rest of this year and in 2019.
According to White, the rising yields will allow the investment bank firms to report a “surprise beat” in the results for the quarter. The rising rates will adversely affect the other sectors such as manufacturing. However, the future looks promising for the financial firms. The manufacturing sector will battle higher input costs.
Furthermore, if the input costs continue to rise and pressurize the margins, that could put pressures on the expectations of lots of companies moving forward.