“Small-Caps Rising: Testing Overbought Conditions on the Major Indexes

Recently, the three major stock market indexes have been experiencing overbought conditions. This leaves investors considering several options to position themselves for growth. One such option is small cap stocks. While sometimes overlooked and considered a risky bet, small cap stocks can offer significant returns, particularly during turbulent market times. Small cap stocks are those that belong to new and emerging companies who, due to their size and normally lower stock prices, typically have less liquidity than blue-chip stocks. This can make them more volatile, and therefore, riskier than blue-chip stocks. However, on the flip side, this same level of volatility can be used as a source of benefit for investors, as small cap stocks can experience immediate returns and surge during times of market optimism. Today, small cap stocks are attractive options for those seeking growth in what is generally a period of market deceleration. The current environment indicates that major indexes are reaching overbought levels, indicating that they may suffer a correction in the foreseeable future. Small cap stocks, however, may benefit from the same push and pull of positive and negative news that large-cap names do, as investors look to safe havens within the market. What’s more, is that small caps are well suited to being used as an entry point into the market for novice or passive investors. For those seeking to take a foothold in the market without too much risk, small caps may offer the perfect way in, with the potential for high returns despite the greater degree of volatility. Therefore, investors should consider small caps not just as a viable alternative given current market conditions, but also as a long-term investment strategy. While small caps can be risky, if managed properly, they can be an equally rewarding and vital portfolio option.

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