myICLUB Blog

In recent weeks, many market pundits have pointed out that, after an epic runup, many large-cap stocks, especially in the tech sector, are stalling. In their place, investors are increasingly turning towards small-caps when seeking returns.

Forbes’ contributor Bill Stone wrote in a July 28, 2024, article entitled “Rotation To Small-Cap From Tech Stocks Continues,” that since July 9, “Small-cap stocks are 11.4% higher, while the Magnificent 7 and the S&P 500 declined by 10.9% and 2.1%, respectively.” He added, “The outperformance of banks and small-cap stocks provides further evidence that this is not a sign of a rising risk of recession.”

On July 25, 2024, The New York Times published a piece by Joe Rennison that declared, “Shifting views on the economy have led to a ‘rotation’ in the stock market. Small stocks and companies geared toward the economic cycle are rising. Big Tech is lagging.”

Stephanie Aliaga, Global Market Strategist for J.P. Morgan disagrees, writing on July 25, 2025, that, “Overall, it seems like valuations may be the only particularly exciting thing about small caps right now. While we believe market performance will continue to broaden outside of mega-cap tech, the strength of the rotation into small caps seems premature given weak fundamentals.”

Her conclusion is: “Instead, lesser-loved areas of large cap or mid cap markets may provide better grounds for opportunity.” (If Aliaga needs to see evidence of some small-cap stocks with strong fundamentals, we can certainly send her a copy of this issue of the SmallCap Informer.)

Finally, on July 26th, an Oppenheimer technical strategist posited that current market weakness means there are buying opportunities for small-caps.

So, what is the “trend,” and what is the market telling us?

As the below graph of the last twelve months shows, July did bring renewed interest in small-caps while the S&P 500 fell off its highs.

Other than the small-cap bump that occurred at the end of 2023 (and which had receded by the end of January 2024), small and large company stocks have tracked each other directionally over most of the last 52 weeks, with large stocks leading nearly every step along the way.

In July, though, the S&P 500 distinctly pulled back while the S&P SmallCap 600 pointedly surged ahead.

Something is clearly afoot, but it could just be the market performing as irrationally as ever in the near-term. Over the long-term, fundamentals will always win out.

Many of the high-quality undervalued companies we track in the SmallCap Informer have outsized potential for future returns from their current levels—regardless of what is in or out of favor in the broader market.
 

In this issue of the SmallCap Informer, we introduce a company that is a market leader in the Internet Content & Information industry group, but has seen its shares pushed down, perhaps (we suggest) artificially, and perhaps (we conclude) a buy for intelligent investors.

Stay the course!

• DOUG GERLACH

Subscribers can read Doug's complete commentary and the in-depth profile of our recommended small company stock in the August 2024 issue of the SmallCap Informer stock newsletter. Not a subscriber? Subscribe to the SmallCap Informer and get monthly small company stock recommendations and updated buy/sell prices for each of the 47 high-quality small company stocks currently covered in the newsletter.