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Following a powerful rally that has lifted them off historically cheap levels, small-cap stocks in both Europe and the U.S. are on the verge of a “golden cross” on the price charts that could portend even more gains to come in the new year.
See: Beaten-down small-cap stocks are roaring back. Why they could soar in 2024.
The Russell 2000
RUT,
a benchmark index for U.S.-traded small-caps, is on the verge of a golden cross because its 50-day moving average is approaching its 200-day moving average, as analysts from Renaissance Macro pointed out in a recent note shared with clients and MarketWatch.
RENAISSANCE MACRO
As of Tuesday’s close, the Russell’s 50-day moving average was within 15 points of its 200-day moving average, which stood at 1,824.68, according to FactSet data. The index is already trading well above both moving averages after rising more than 23% since Nov. 1, FactSet data show. The index rose 1.2% on Tuesday to close at 2,059.19.
The 50-DMA is a widely followed short-term trend tracker, while many view the 200-DMA as a dividing line between longer-term uptrends and downtrends. A golden cross is often seen as a confirmation of a positive shift in an asset’s long-term trend.
European small-caps aren’t too far behind their American peers. The iShares MSCI European Small-Cap ETF
IEUS,
which tracks a market-cap weighted index of European small-cap stocks, has risen nearly 20% between Nov. 1 and Tuesday’s close, according to FactSet.
RENAISSANCE MACRO
The ETF closed at $56.19 a share on Tuesday, leaving its 50-day moving average within $1 of its 200-day moving average, which stood at $52.15.
This represents a remarkable turnaround from just two months ago, when the Russell 2000 fell to its lowest price relative to the technology-heavy Nasdaq-100
NDX
on record, as MarketWatch reported.
See: Tempted to go bargain-hunting for small-cap stocks? Why you might want to wait.
Many previously struggling sectors of the U.S. market have benefited tremendously from expectations that the Federal Reserve could cut interest rates, perhaps aggressively, in 2024. Hopes for a “soft landing” for the U.S. economy have also helped to give small-caps a boost, analysts said.
Some have characterized the Russell 2000’s gains, along with those of the ARK Innovation ETF
ARKK,
seen as a proxy for unprofitable technology companies, as a “dash for trash,” part of a speculative frenzy inspired by the market’s rate-cut hopes.
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