With the equity markets rallying as of late, small-caps are expected to experience a bounce as well. Traders may want to consider playing the bounce via the Direxion Daily Small Cap Bull 3X Shares (TNA).
The Russell 2000 is looking green with a gain of about 9% within the past month. Irrespective of market caps, the stock market in general has succumbed to inflation fears for most of the year, so any year-to-date charts will show losses.
While small-caps can show amplified moves up or down, they have been in relative lockstep with their larger-cap brothers when looking at the Russell 2000 and the S&P 500 side-to-side. The Russell 2000 is down about 17%, while the S&P is down about the same, so the notion that larger-caps can withstand weakness better hasn’t quite held in this particular case.
Big tech comprising a larger portion of the S&P in years past may have something to do with the index’s weakness relative to the Russell 2000. Either way, a year-end rally would be of benefit to both large- and small-caps, especially the latter when upside momentum takes place.
Given this, TNA is worth a look; the leveraged fund tracks the Russell 2000 Index and seeks daily investment results equal to 300% of the daily performance of the index. Leveraged funds can provide traders with strategic exposure to niche corners of the market like small-caps, but should only be utilized by seasoned market players.
Small-Caps Well Positioned in Current Market?
With inflation still a thorn in the side of capital markets, it might seem like large-caps are still the way to go. That’s especially the case if a recession were to hit the economy thanks to too much monetary policy tightening by the Federal Reserve, but some analysts think small-caps are well positioned in the current market.
Looking at the long-term horizon, small-caps are primed for growth. For the investor looking at the forest through the trees, small-cap exposure can be of benefit to a portfolio in the long run.
“We think small-caps are really well positioned for this environment because they are leveraging the domestic economy, and more importantly, they are leveraging the industrial economy which we believe will be leading in growth for not only the next year but for the next decade,” said Nancy Prial, co-CEO and senior portfolio manager at Essex Investment Management.
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