Investors have spent a long time waiting for another big run in small-cap stocks... Their last great run was from 1999 to 2004. That's basically ancient history at this point.

Why You Need to Be Picky With Small Caps By Joe Austin, senior analyst, Chaikin Analytics Investors have spent a long time waiting for another big run in small-cap stocks... Their last great run was from 1999 to 2004. That's basically ancient history at this point. Keep in mind that the cycle of outperformance for large caps relative to small caps tends to last anywhere from nine to 11 years. 2024 marked the 14th year of large caps outperforming small caps. Large caps are still ahead this year, too. And since 2023, the annual performance gap has increased. In 2023, large caps beat small caps by 11 percentage points. In 2024, the difference was roughly 15 percentage points. So it's no wonder small-cap investors have long been feeling like they're wandering in the desert. But last month, we saw a small glimmer of hope... In August, the Russell 2000 Index – the biggest proxy for small-cap stocks – surged 7%. And the S&P 500 Index – the biggest proxy for large-cap stocks – was only up 2%. That got small-cap investors excited. Many of them are saying a great rotation is here. But as the old saying goes, one swallow does not make a summer. Whether this is a new era for small-cap stocks or not is anyone's guess. But the real question isn't so much about a turn in the cycle. Instead, it's how to find great investments no matter what happens. And as it turns out, when investing in small-cap stocks, being picky isn't optional... Recommended Links: 'The Single Greatest Moneymaking Anomaly in the U.S. Stock Market Today' Beginning September 17, this anomaly could help you separate stocks that will deliver gains of 200%... 500%... even 800% by this time next year... from stocks that are DOOMED to crash up to 90% or MORE. See this critical update immediately. Whitney Tilson's Most Controversial Call Yet Whitney Tilson has spent decades trading ideas with billionaires, even baking cookies for Warren Buffett each Christmas. But after a multiyear study, he says a new AI system outperformed Berkshire Hathaway itself. Whitney calls it the single biggest financial breakthrough of his career... and now he's ready to open it up to you. Separating Winners From Losers Is More Important Than Whether a New Cycle Is Here Today, there are two reasons to get excited about small cap stocks... On a relative basis, they have been cheap. As of June, high valuations among the "Magnificent Seven" mega-caps pushed the S&P 500's price-to-sales ratio to about 3. That's compared with a ratio of only about 1 for the Russell 2000. Meanwhile, investors were paying about 5 times book value for the S&P 500 versus just around 3 times book value for the Russell 2000. On an absolute basis, small-cap companies are expected to deliver more than double the earnings growth of large-cap stocks. Analysts project the S&P 500 will generate about 31% earnings growth for 2025 and 2026 combined. On the other hand, Russell 2000 is expected to achieve more than 80% earnings growth over that same span. It's easy to see why those small-cap investors are excited. But there's a catch... As you would expect, not all those small-cap companies are slam dunks from an investment standpoint. In fact, about 40% of companies in the Russell 2000 don't make money. That compares with about 6% for the S&P 500. And over the past 20 years, there has been a big difference in performance between money makers and money losers... Since 2004 through late 2024, profitable small caps beat the Russell 2000 by 2% per year. And unprofitable ones trailed the index by 4.4%. So, are we there yet with a turn in the cycle? We can't know for sure – even after the small-cap outperformance last month. What really matters is finding the small-cap companies that are profitable and growing. That's regardless of whether we're at the beginning of a new cycle or not. Yes, small-cap stocks offer plenty of opportunity. But you need to separate the winners from the pretenders. In the end, you can buy the Russell 2000 and hope for the best with the 40% of unprofitable companies in there. Or you can be selective... and stack the odds in your favor. Good investing, Joe Austin   Editor's note: When it comes to being selective, that's where the Power Gauge comes in... As regular readers know, it monitors 20 factors across four different categories – Financials, Earnings, Technicals, and Experts. And it condenses all that information into a single, actionable rating. These range from "very bullish" to "very bearish." And the rating tells us where a stock is likely headed in the months ahead. If you don't already have access to the Power Gauge, you can get it as part of a special offer on signing up for Marc Chaikin's flagship Power Gauge Report newsletter. And for the first 30 days of trying it out, you'll be fully protected by our 100%-cash-back guarantee. We've put the details together in a special presentation. You can learn more here. Market View Major Indexes and Notable Sectors     # Hld:     Bullish     Neutral     Bearish Dow 30 +0.4% 9 16 5 S&P 500 +0.23% 137 231 132 Nasdaq +0.28% 29 50 21 Small Caps -0.59% 698 1028 304 Bonds -0.57% — According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks are Bullish. Major indexes are all bullish. *  *  *  * Sector Tracker Sector movement over the last 5 days Communication +3.84% Consumer Discretionary +2.47% Information Technology +2.13% Health Care +0.75% Real Estate +0.7% Consumer Staples +0.1% Industrials -0.21% Financial -0.47% Utilities -1.01% Materials -1.15% Energy -3.25% *  *  *  * Industry Focus Capital Markets Services 29 28 5 Over the past 6 months, the Capital Markets subsector (KCE) has outperformed the S&P 500 by +8.42%. Its Power Bar ratio, which measures future potential, is Very Strong, with more Bullish than Bearish stocks. It is currently ranked #10 of 21 subsectors. Top Stocks AMG Affiliated Managers BK The Bank of New York EVR Evercore Inc. *  *  *  * Top Movers Gainers UNH +8.64% CNC +7.7% SMCI +7.19% APH +5.65% COIN +5.49% Losers HUM -12.04% ALB -11.49% FOX -6.67% FOXA -6.15% FCX -5.94% *  *  *  * Earnings Report Earnings Surprises SNPS Synopsys, Inc. Q3 $3.39 Missed by $-0.36 ORCL Oracle Corporation Q1 $1.47 Missed by $-0.01 CNM Core & Main, Inc. Q2 $0.70 Missed by $-0.09 *  *  *  * You have received this e-mail as part of your subscription to PowerFeed. If you no longer want to receive e-mails from PowerFeed, click here. You're receiving this e-mail at STEVENMAGALLANES520.NIMS@BLOGGER.COM. For questions about your account or to speak with customer service, call +1 (877) 697-6783 (U.S.), 9 a.m. - 5 p.m. Eastern time or e-mail info@chaikinanalytics.com. Please note: The law prohibits us from giving personalized financial advice. © 2025 Chaikin Analytics, LLC. All rights reserved. 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