Vanguard President and Chief Investment Officer Greg Davis said this week, “Small caps, to us, still look relatively cheap — relative to some of the large-cap alternatives that are out there, We think there’s a lot of room for small cap, in addition to value, to continue to run, What we try to tell investors is that you can get broader diversification looking at the total market,” The recent rise in small-cap stocks suggests these investments might still offer significant growth potential, thanks to favorable valuations and the current economic climate. Greg Davis pointed to the Russell 2000’s nearly 10% gain in July as a sign that small-cap stocks are undervalued compared to large-cap ones. He noted that small-cap stocks, especially those considered value stocks, may keep increasing in value if economic conditions stay positive. The 11.9% rise in the Vanguard Russell 2000 Value ETF also highlights the strong performance of small-cap value stocks.
This small-cap rally comes after a period when major tech companies like Nvidia and Microsoft led the market, raising concerns about too much reliance on a few stocks and an over-concentrated market. Davis acknowledged these worries but mentioned that while current market levels are high, they are not at extreme historical levels. He suggested that investors should look beyond the S&P 500 to explore broader market opportunities, including small-cap stocks.
Looking ahead, political events and monetary policy will be important in shaping market trends. Davis advised investors to focus on long-term goals and not get distracted by short-term political noise. On the policy front, Vanguard expects the Federal Reserve might cut rates this year, with more potential cuts in 2025. Lower interest rates could benefit small-cap stocks by reducing borrowing costs and boosting economic activity. With Salim Ramji now as CEO, Vanguard remains committed to investing in small-cap stocks and diversifying across the market.
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