Small-Cap Stocks Surge as Investors Anticipate Fed Rate Cut

Russell 2000 Outpaces S&P 500 As Small Caps Anticipate Fed's Interest Rate Move - IGM Biosciences (NASDAQ:IGMS), Applied Therapeutics (NASDAQ:APLT), Vanguard Small-Cap ETF (ARCA:VB), SPDR S&P 500 (ARCA:SPY)

ETFs like IWM and VB offer exposure to small caps, poised to gain from upcoming Federal Reserve rate cuts. Small-cap stocks are all fired up ahead of the Federal Reserve's anticipated interest rate cut, enjoying their moment in the spotlight. Over the past week, the Russell 2000 Index surged more than 5%, outperforming its larger-cap cousins in the S&P 500 Index, which only gained about 2.5%. Chart created using Benzinga Pro Evidently, the Russell 2000 Index-tracking iShares Russell 2000 ETF (IWM) has outperformed the S&P 500 index-tracking SPDR S&P 500 ETF SPY. Among those driving small-cap performance over the past week are stocks such as IGM Biosciences Inc IGMS, Intuitive Machines Inc LUNR and Applied Therapeutics Inc APLT which are up 59.33%, 38.62% and 44.90%, respectively, over the past five days. Don't miss out on this unparalleled opportunity: Register now to secure your spot at Benzinga's Largest SmallCap Conference ever in Chicago! Small Caps Anticipating A Fall In Borrowing Cost Investors seem convinced the Fed is about to ease up, and small caps -- especially those burdened by debt and tied to floating rates -- are reaping the benefits. Here's why: small-cap companies tend to rely on floating-rate debt, meaning when interest rates drop, their borrowing costs fall too. In theory, this frees up cash and makes life a little easier for companies with shakier balance sheets. So naturally, rate cuts have investors licking their chops over the potential for outsized gains in these smaller stocks. But before you jump on the small-cap train, there's a wrinkle. Earnings, Economy Could Turn The Table While the prospect of cheaper borrowing is exciting, the markets are also buzzing with talks of sluggish earnings and a murky U.S. economic outlook. Thus, the hype around small caps could fizzle if the economy doesn't hold up its end of the bargain. For investors looking to get in on the action, exchange-traded funds like the IWM or the Vanguard Small-Cap ETF VB provide diversified exposure to small-cap stocks. These funds track the performance of small-cap indexes and are great ways to benefit from potential gains without handpicking individual stocks. Still, there's the question of how long this rally will last. Small Cap ETF Showing Strong Bullish Trend Chart created using Benzinga Pro The IWM, proxy for small cap stocks, is exhibiting a strong bullish trend, with its share price of $219.23 positioned above the five, 20, 50 and 200-day simple moving averages (SMAs). Specifically, the eight-day SMA at $213.80, the 20-day SMA at $215.07 and the 50-day SMA at $214.41 all suggest a bullish signal, reflecting the ETF's robust upward momentum. Despite the strong bullish trend, IWM is currently experiencing slight selling pressure, indicating potential short-term volatility. The ETF's position well above its 200-day SMA of $203.57 further supports a positive technical outlook, suggesting continued strength in the small-cap sector. If the Fed goes big with a half-point cut, small caps might steal the show. But even a modest 25-basis-point cut could keep the rally alive -- for now. Investors may want to keep an eye on the SPDR S&P 600 Small Cap ETF SLY for broader exposure to small-cap companies that might benefit from lower rates. Don't miss the opportunity to dominate in a volatile market at the Benzinga SmallCAP Conference on Oct. 9-10, 2024, at the Chicago Marriott Downtown Magnificent Mile. Get exclusive access to CEO presentations, 1:1 meetings with investors, and valuable insights from top financial experts. Whether you're a trader, entrepreneur, or investor, this event offers unparalleled opportunities to grow your portfolio and network with industry leaders. Secure your spot and get your tickets today! Read Next: Small-Cap Sectors Brace For Fed Rate Cut: Financials, Real Estate ETFs Offer Compelling Plays For Investors Image created using artificial intelligence via Midjourney. Market News and Data brought to you by Benzinga APIs

Small-Cap Sectors Brace For Fed Rate Cut: Financials, Real Estate ETFs Offer Compelling Plays For Investors - Invesco S&P SmallCap Consumer Discretionary ETF (NASDAQ:PSCD), iShares U.S. Real Estate ETF (ARCA:IYR), Vanguard Real Estate ETF (ARCA:VNQ), SPDR S&P Oil & Gas Explor & Product (ARCA:XOP)

Tech and healthcare remain resilient, while consumer discretionary small caps could see a lift from improved spending power. The Federal Reserve is set to sprinkle some interest rate fairy dust, and small-cap sectors are lining up to see who'll soar or stumble. While the Russell 2000 is stealing the spotlight with its 5% surge ahead of the rate cut, not all small caps will feel the same love from lower borrowing costs. So, what sectors should investors be eyeing, and where do the best ETFs come into play? Financials: Money Talks, But Who's Listening? Small-cap financials, often living and breathing on rate-sensitive margins, are gearing up for a potential win. As borrowing costs fall, these lenders, insurers, and regional banks get a shot in the arm. For those looking to ride the wave, the iShares Russell 2000 Financials ETF IWFN offers concentrated exposure to this potentially booming sector. Real Estate: Open House For Gains? Real estate stocks also stand to benefit as mortgage rates and financing costs drop. With rate cuts loosening the borrowing purse strings, real estate could experience a boost in demand and valuation. Investors eyeing the space might find the Vanguard Real Estate ETF VNQ or iShares U.S. Real Estate ETF IYR perfect for capturing the sector's expected rise. Don't miss out on this unparalleled opportunity: Register now to secure your spot at Benzinga's Largest SmallCap Conference ever in Chicago! Consumer Discretionary: Retail Therapy Ahead? Lower interest rates also often mean more cash for consumers to splurge on non-essentials, giving a lift to small-cap retail, travel, and leisure names. The SPDR S&P 600 Small Cap Consumer Discretionary ETF PSCD is one way to jump on this sector's shopping spree. Energy: A Wildcard In The Small-Cap Mix Energy stocks are notorious for being tied to oil prices, but lower rates can still offer some breathing room for these debt-heavy companies. For those ready to hedge their bets, the SPDR S&P Oil & Gas Exploration & Production ETF XOP could be the small-cap energy ETF to watch. Read Also: This Small Cap 'Top Pick' Is Positioned For Strong Gains, JPMorgan Sees Over 50% Upside Technology, Healthcare: Resilient But... Rate-Resistant? While technology and healthcare sectors aren't as rate-sensitive as financials or real estate, they remain staples in small-cap ETFs like the iShares Russell 2000 ETF IWM and Vanguard Small-Cap ETF VB. Both funds are solid all-around plays for investors who want diversified exposure to the small-cap space, especially as uncertainty lingers. As the Fed moves its rate-cutting wand, small-cap sectors will each feel the ripples differently. Whether you're banking on financials, betting on real estate, or shopping for consumer discretionary, there's a sector -- and ETF -- for every investor's playbook. Read Next: EXCLUSIVE: Small Caps At 'Most Attractive Relative Valuations' Since 1990s, Says Russell Investments' Paul Eitelman Don't miss the opportunity to dominate in a volatile market at the Benzinga SmallCAP Conference on Oct. 9-10, 2024, at the Chicago Marriott Downtown Magnificent Mile. Get exclusive access to CEO presentations, 1:1 meetings with investors, and valuable insights from top financial experts. Whether you're a trader, entrepreneur, or investor, this event offers unparalleled opportunities to grow your portfolio and network with industry leaders. Secure your spot and get your tickets today! Image created using artificial intelligence via Midjourney. Market News and Data brought to you by Benzinga APIs