Small-cap stocks are flashing a compelling bullish signal, presenting a potential rally opportunity as earnings accelerate, valuations remain attractive, and the market anticipates significant interest rate cuts.
Are Small-Caps Ready To Challenge Mega-Cap Dominance?
This confluence of factors, highlighted by data compiled from LSEG Data & Analytics, Bloomberg, and Barclays Research and shared by X user @WallStJesus, suggests a fundamental shift that could challenge the long-standing dominance of mega-cap stocks.
Recent data paints a robust picture for the small-cap segment. Forward earnings growth for small-cap companies has seen a sharp acceleration, with “NTM (next 12 months) earnings growth” showing a significant upward trend, achieving 3.7% year-to-date.
This growth is projected to continue, with small-cap EPS growth expected to consistently outpace that of large caps (excluding technology) well into 2026.
Small-Caps Earnings Outperform In Q2
This outperformance was already evident in the second quarter, where small-cap earnings per share growth surged by an impressive 12.1% year-over-year, despite sales declining by 5.0%, underscoring strong operating leverage.
Moreover, the health of the small-cap universe is improving, with the share of unprofitable names declining from recent highs, indicating …