Tax reforms could also support smaller companies pressured by a weaker dollar. Small-cap earnings lagged behind the 10% jump for large-caps.
“When everyone comes back from the holidays and the beach, what you generally see is the rationalization of earnings estimates, and quite frankly second-quarter earnings weren’t great,” DeSanctis said. “We have weak earnings, a lot of uncertainty around tax overhaul and some drama with the fiscal budget and the debt ceiling, these are some real issues that could hurt small-caps.”
Given the ongoing uncertainty, many still anticipate lingering volatility in the small-cap recovery, especially as smaller companies are “much more at risk than the large and more internationally exposed companies,” Michael Purves, Chief Global Strategist at Weeden & Co, told Reuters, citing concerns about the lack of a “cohesive mood” in Washington.
For more information on small-capitalization stocks, visit our small-cap category.