Investing in small-cap stocks can be a savvy move this holiday season, and according to BTIG, now might be the right time to buy the dip. As the year winds down, the small-cap Russell 2000 index is showing signs of fatigue, having slipped nearly 3% in December. Nevertheless, BTIG’s technical strategist, Jonathan Krinsky, pointed out to clients in a recent note that this dip aligns with a historical trend that often sees small caps rallying as the new year kicks off.
Krinsky highlighted, “Historically, small-caps tend to experience some weakness in mid-December, which then shifts to strength by mid-February. This period on the calendar typically sees small-caps starting to outperform their larger counterparts.”
The Russell 2000 index, which serves as a benchmark for small-cap stocks, is indeed struggling in December. Throughout 2024, small-cap stocks have enjoyed several strong phases, though these have been relatively short-lived. Year-to-date, the Russell 2000 is still lagging significantly behind the S&P 500 and Nasdaq. Recently, the market has reverted to a scenario reminiscent of the early days of this bull market, where leadership has been narrow and dominated by Big Tech stocks while the broader market faces challenges.
However, Krinsky believes that this reversion doesn’t necessarily mean the historical trend for small caps will be disrupted this year. He observed, “Every day in December has brought negative breadth for the S&P 500, exceeding even the modern records set post-9/11. The equal-weight RSP has consistently closed below its opening price throughout the month, and small-caps are indeed struggling. Yet, despite this unprecedented stretch of poor breadth, small-caps are showing resilience—they’re bent, not broken.”
