Small-caps seized spotlight in 2009. But will this asset class and its related exchange traded funds (ETFs) keep the good times rolling on into the new year?Small-caps had a nice 2009: The Russell 2000 Index, gained 28.7% through Dec. 24 after declining 34.8% in 2008, and the S&P Small Cap 600 index, rose 25.6% after dropping 32% in the preceding year.
David Bogoslaw for BusinessWeek explains that the Fed’s anticipated withdrawal of some of the massive liquidity it pumped into a crisis-ridden financial system suggest that small-cap stocks won’t perform as well as larger ones in the year ahead. [What makes up a small-cap and micro-cap share and ETF?]
Bear in mind, though, that the recovery is not firm yet. We’re in for a long slog, many analysts believe. Although banks seem to be doing better, Main Street is still ailing: job growth is not positive yet, and unemployment numbers remain at two-decade highs. A recovery environment historically favors small-caps. [International small-cap ETFs have enjoyed a rally.]
Small-caps won’t always be in favor, though, so watch the trend lines and have your stop losses in place. [How to follow the trends.]