Jackson Hole Sent a Wave of Capital into Stocks of All Sizes

When rates are cut, it helps equities as a whole, but especially small-cap stocks. That’s because smaller companies rely more on debt, and lower rates mean cheaper debt, which flows to the bottom line.

A Wave of Capital into Stocks

Jackson Hole sent a wave of capital into stocks of all sizes. To show you, I’m going to use these exchange-traded funds as proxies:

• SPDR S&P 500 ETF Trust (SPY) for the S&P 500
• Invesco QQQ Trust (QQQ) for the Nasdaq 100
• iShares Russell 2000 ETF (IWM) for the Russell 2000
• iShares Russell 2000 Value ETF (IWN) for the Russell 2000 Value
• iShares Core S&P Small-Cap ETF (IJR) for the S&P SmallCap 600
• SPDR Dow Jones Industrial Average ETF Trust (DIA) for the Dow

The one-day performance is excellent:

But look at the under-owned small-cap groups above – more than 4% rises for each!

It was the start of something that turned out to be bigger. Check out how Big Money inflows aimed squarely at smaller stocks:

And the focus on small, growth-oriented stocks could be seen in the performance of the S&P SmallCap 600, especially on the day of the Jackson Hole announcement:

This index is loaded with small health care, financial, industrial, and discretionary companies looking to grow.

Bigger Future Returns

It turns out this level of small-cap upward momentum is rare. Even better – it’s bullish.

Since March 2009, the SmallCap 600 has jumped 3.8% or more in a day 51 times. As you can see, it’s led to bigger future returns:

To recap, since 2009, this is the average performance:

• Three months later, small-cap stocks jump 12.3%.
• Six months later, small-caps fly 22.3%.
• A year later, smaller stocks zoom with 47.8% gains.
• Two years later, small-caps are up almost 62%.

And since 2020 (purple bars above), the performance is just as high quality.

Another data point favoring small-caps (and all stocks) is the length of time between Fed rate cuts. When there’s a cut after at least five months of no cuts, equities gain:

In other words, it looks like we are entering a golden age for small-cap stocks. The data shows they’re worth considering for a diversified portfolio.

Spot The Winners and Emerging Leaders

Rotation is on and signs point to small-cap stocks flourishing.

To spot the winners and emerging leaders, it pays to have a guide. And you do – use MoneyFlows to spot the future leaders. Follow the flows.

If you are a Registered Investment Advisor (RIA) or a serious investor, take your investing to the next level and follow our free weekly MoneyFlows insights.