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Avoid the most popular small-cap ETF and focus more on quality businesses with these two picks.
The recent rally in the S&P 500, which hit its 45th record close of 2024, is more inclusive than in previous months. While banks and financials have led this broader market rise, small caps are also catching the attention of analysts.
As interest rates keep moving lower from here, it makes sense to diversify your portfolio beyond the market's biggest and brightest.
Income investors often favor value investments like midstream infrastructure, equity REITs, and blue-chip cash cows for yields between 5% to 8%. Long-term alpha-like returns are unlikely with these assets, but they offer stable income streams that are suitable for defensive retirement portfolios. Some investors might, however, want to combine high yield with growth-like exposure.
Since small-cap stocks are more domestically-focused, an improving US economy and a dovish Fed are tailwinds for small-cap stocks and ETFs.
Like those represented by the iShares Russell 2000 ETF NYSE: IWM, small-cap stocks are especially sensitive to interest rate changes. Historically, after the Federal Reserve implements rate cuts, all market cap sectors tend to rally, but small caps often outperform their larger-cap peers.
Small caps tend to outperform as falling borrowing costs are a tailwind. These companies rely more on debt than their larger-cap peers.
The Fed is about to cut its benchmark policy rate for the first time in more than four years.
VNQ, ITB, XLY, IWM and GLD are included in this Analyst Blog.
The Fed is scheduled for the first rate cut since 2020 in its meeting this week. Lower rates stimulate economic growth and provide a boost to the stock market.