Small-cap stocks headed for best first half of the year in decades. CNBC detailed that the Russell 2000 has so far climbed more than 21%, putting the index on track to notch the highest gain since 1991, CNBC noted.
The outlet went on to detail that the climb has been largely driven by the AI boom, same as it has happened with indexes tracking larger companies.
The Russell 2000 has largely underperformed larger-cap companies over the years, even losing 2.5% last year and almost 24% in 2022.
Amy Zhang, portfolio manager at Alger, told the outlet that the increase can be seen as “both a valuation catch-up story and a fundamental story.”
“The valuation gap was so wide that a truck can drive through it. At the same time, fundamentals are improving in small caps and I think that’s why it’s causing the broadening trade,” she added.
CNBC explained that semiconductor and semiconductor equipment companies have been the biggest winners of the index, accounting for 16 of the 50 companies with the best performance. Aehr Test Systems, Ichor Holdings and MaxLinear are some of them, climbing by more than 400%.
“The impact of AI investment trickles down from large-cap leaders to small-cap companies. The effect will be more amplified for small-cap companies, in terms of revenue and probability growth,” Zhang noted.
Elsewhere, the outlet said that consensus forecasts for the index’s earnings growth have climbed to 38% from 23% at the beginning of the year, according to LPL Financial.
Larger-cap indexes are also set to close a positive first half of the year. The Dow Jones Industrial Average gained 8.6% so far, on track for its best performance for the period in five years. The S&P 500 notched a similar increase, while the tech-heavy Nasdaq Composite has so far increased by more than 11%.
The gains have taken place in the second quarter as indexes reversed losses from earlier in the year, when stocks fell as a result of the war in Iran and uncertainty about the sustainability of AI spending. In the second quarter, however, the S&P 500 gained about 14% and the Nasdaq Composite did so almost 20%, putting the index on track for its largest gain since the second quarter of 2020, in the middle of the pandemic. The Dow Jones has gained more than 12% and would notch its strongest quarter since the last quarter of 2022.
