The money flowing into small-cap stocks may not be a rotation from profitable growth deals.
Dave Nadig, ETF journalist and financial futures expert, says investors are “just buying, buying, buying.”
“What we are seeing is a diversified trading activity,” he told CNBC.ETF Edge“this week. “We’re seeing an increase in everything, and to me that means people are looking to expand their reach a little bit more, which is smart in an election year.”
Nadig said expanding the portfolio will help absorb volatility in the months leading up to the presidential election.
“[Investors] “Now, for the first time in ages, they’re buying value, buying some of these defensive sectors, buying small caps. But they’re also buying other things,” he said. “I think this is money flowing in from the giant money market group that we know is out there.”
When it comes to small-cap trading, Nadig said it is still too early to determine whether the rally is sustainable.
“If we have a sustained rally in small caps, and I mean, like we have two or three months where small caps across the board are clearly beating large caps, then I think you’re going to see a lot of performance chasing money happening there,” Nadig said.
“If what we’re seeing is just a re-diversification of trading activity, I think you would expect this to be a little bit slower for the rest of the year,” he added.
The Russell 2000The Dow Jones Industrial Average, which tracks small-cap stocks, fell 0.6% on Friday. But it was superior. the Dow Industrial Averagethe S&P 500 and Nasdaq Composite. Additionally, the Russell 2000 was up for the week — up nearly 2%. The index is now up nearly 8% over the past month. But it’s been largely flat since President Joe Biden took office in January 2021.
‘I didn’t expect this big wave to come from cash’
Anna Paglia, who develops global ETF strategies for State Street Global Advisors, sees expectations of rate cuts as a catalyst for the strength of laggards in the sector.
“Investors are really comfortable with risk and there will be momentum,” said Paglia, the firm’s chief trading officer.
However, she doesn’t see investors withdrawing money from their money market accounts simply because people want cash for some reason.
“Most of it is fixed. I don’t think there will be a big wave of investors moving out of money market funds and into stocks or ETFs,” Paglia said.
