Rising Underdogs: The Unstoppable Surge of Small-Cap Stocks in 2023

The financial universe of 2023 has been dominated by tales of tech titans and the eye-watering growth of mega-cap stocks. With around ten of these giants responsible for the meteoric rise of the S&P 500® Index in H1 2023, it’s easy to think they’re the only show in town. But beneath the surface of these headline-grabbers lies an intriguing tale of smaller players – the small-cap stocks – preparing to take the lead.

Rising Underdogs: The Unstoppable Surge of Small-Cap Stocks in 2023

Is Narrow Leadership Fading?

While mega-cap stocks had their moment in the spotlight, market analysts predict a shift. The disproportionate reliance on a handful of companies to propel the index isn’t sustainable. Instead, broader market leadership seems imminent. Enter the small-cap stocks.

The Rise of Small-Caps: An Overdue Reckoning?

Small-cap stocks, typically classified as companies boasting a market capitalization between $300 million to $2 billion, have been the underdogs, trailing their larger counterparts. However, their current valuations, offering sizable discounts relative to large-caps, make them tantalizingly attractive.

While the Russell 2000 Index remained stagnant for the initial months of 2023, it made an impressive comeback between June and mid-August, rallying over 10%. However, past feats don’t promise future triumphs.

Decoding the Small-Cap Discount

Denise Chisholm, Fidelity’s maestro of quantitative market strategy, spotlighted the stark price-to-book-value disparity between small-caps and their larger peers. Historical data reveals that whenever such a disparity emerges, small-caps typically promise double-digit returns in the subsequent year, often overshadowing large-caps.

Another compelling metric, the price-earnings ratios, paints a similar picture. When focusing only on profitable small-caps, they’re seen trading at nearly a 30% discount to large caps. This differential hasn’t been this pronounced since the 2000 tech bubble.

Shadman Riaz, at the helm of Fidelity® Stock Selector Small Cap Fund (FDSCX), echoes this sentiment. Citing a decrease in analysts’ attention towards smaller entities, Riaz identifies this oversight as a strategic advantage for discerning investors.

A Unique Investment Universe

Investing in small-caps isn’t merely a miniaturized version of large-cap investing. The former’s composition contrasts sharply from the latter. For instance, industrials loom larger, comprising over 18% of the Russell 2000. Technology, the darling of the S&P 500, plays a smaller role in the small-cap realm, contributing just 13%.

Moreover, small-cap entities lean heavily on domestic markets, with a distinct North American flavor. This home-focused approach buffers them from global turbulence, says Riaz. The trend of reshoring, or returning manufacturing stateside, is further anticipated to buoy small companies.

Fund top holdings

  • Commercial Metals Co. (CMC)
  • Atkore Inc. (ATKR)
  • Academy Sports & Outdoors Inc. (ASO)
  • Denbury Inc. (DEN)
  • Brookfield Infrastructure (BIPC)
  • SPX Technologies Inc. (SPXC)
  • Northern Oil and Gas Inc. (NOG)
  • Axcelis Technologies Inc. (ACLS)
  • Advanced Energy Industries Inc. (AEIS)
  • Emcor Group Inc. (EME)

Tapping into U.S. Economic Strength

The resilience of the U.S. consumer has been paramount in staving off a recession. Companies like Fox Factory (FOXF) and Patrick Industries (PATK) embody the enduring consumer habits and the nation’s robust labor market. Further, the technology-driven staffing arena offers prospects like KForce (KFRC) and ASGN (ASGN) that cater to an ever-evolving tech landscape.

Unearthing Value amid Chaos and Innovation

Despite the volatility in sectors like regional banks and commercial real estate, or the transformative nature of technologies like AI, the small-cap domain is ripe with opportunities. Names like Cadence Bank (CADE) in banking, Jones Lang LaSalle (JLL) and Cushman & Wakefield (CWK) in real estate, and several IT service companies in the AI sector stand out.

Fund top holdings

  • Insight Enterprises Inc. (NSIT)
  • LGI Homes Inc. (LGIH)
  • First American Financial Corp. (FAF)
  • Shawcor Ltd. (SAWLF)
  • Enstar Group Ltd. (ESGR)
  • FirstCash Holdings Inc. (FCFS)
  • Jones Lang LaSalle Inc. (JLL)
  • Patrick Industries Inc. (PATK)
  • Performance Food Group Co. (PFGC)
  • Sitio Royalties Corp. (STR)


The financial panorama of 2023 offers a landscape filled with lessons and intriguing shifts. While the spotlight has primarily been on the giants of the industry, the understated narrative of small-cap stocks unveils a world of untapped potential. In a time where economic landscapes are evolving, these smaller players are not just surviving; they are preparing to thrive. As the year progresses, it will be worth keeping an eye on these dynamic entities that promise value, growth, and an opportunity to diversify portfolios beyond the usual behemoths. The world of investment, after all, is not just about following the crowd, but also about recognizing untapped potential before it becomes mainstream.

Author:Com21.com,This article is an original creation by Com21.com. If you wish to repost or share, please include an attribution to the source and provide a link to the original article.Post Link:https://www.com21.com/rising-underdogs-the-unstoppable-surge-of-small-cap-stocks-in-2023.html

Like (1)
Previous August 24, 2023 3:59 pm
Next August 24, 2023 5:28 pm

Related Posts

  • 2 AI Stocks To Consider In 2023

    AI stocks to watch in the stock market today. Artificial intelligence, or AI, is a rapidly evolving field that is transforming how we live, work, and play. Simply put, it’s a technological area that enables machines to mimic human intelligence—making decisions, recognizing patterns, understanding languages, and more. This powerful technology is already changing the face of several industries. This includes industries from healthcare and finance to entertainment and transportation, and its potential for future impact is vast. Hence, from an investment perspective, AI presents a broad array of opportunities. AI…

    June 14, 2023
  • An Introduction to Free Options Strategies: Unlocking the Potential of Options Trading for Beginners

    Introduction Options trading offers a unique way for investors to diversify their portfolios and potentially maximize profits. This blog post aims to introduce the concept of options, the reasons to invest in options, the advantages and disadvantages of options trading, how to get started with options, and common options strategies for beginners. We will also discuss what options can be used for, who can benefit from options trading, and provide a conclusion to tie everything together. What are Options? Options are financial contracts that give the buyer the right, but…

    April 26, 2023
  • Stocks Surge as Cooling Inflation Quells Market Jitters: Weekly Roundup

    The S&P 500 brushed near its highest level since April 2022 on Friday, as calming inflation data invigorated the stock market, encouraging widespread optimism among investors. However, the index registered a slight decline on the day, as the quarterly earnings report from major banks underscored the resilience of the economy, although top executives did not rule out the possibility of a recession. The Dow Jones Industrial Average and the tech-centric Nasdaq Composite witnessed their best weeks since March, appreciating 2.3% and 3.3% respectively. The S&P 500 also displayed a robust…

    July 14, 2023
  • Strategizing Success: Navigating the 7 Common Pitfalls in Options Trading

    As more investors turn to the versatile world of options trading, it is crucial to recognize the common mistakes that can erode profits and increase risks. This comprehensive guide aims to create awareness around seven common options trading mistakes, providing traders with the insight they need to make more informed decisions. Let’s delve into these pitfalls and the ways to avoid them: Mistake #1: Strategy Doesn’t Match Your Outlook Selecting a strategy that aligns with your outlook is a foundational step in options trading. Analyzing market action through technical analysis,…

    August 7, 2023
  • 5 REITs to Buy for Passive Income in 2023

    Real Estate Investment Trusts (REITs) are a popular investment option for those seeking passive income. With the rise of online real estate platforms and the increasing demand for rental properties, REITs have become an attractive option for investors looking for steady and reliable income streams. In this article, we’ll highlight five REITs that are poised for growth in 2023 and offer attractive yields for passive income seekers. What is Real Estate Investment Trusts (REITs)? Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-generating real estate properties….

    December 16, 2022
  • Artificial Intelligence and Investing: Is the Excitement Generating a Stock Market Bubble?

    History serves as a guiding light, enabling us to navigate the complexities of the present by drawing parallels with the past. Despite the knowledge that past performance isn’t necessarily indicative of future outcomes, we often find comfort in these correlations. Today, many parallels are being drawn between the present enthusiasm for technology, especially Artificial Intelligence (AI), and the internet fervor at its dawn. We recently had the pleasure of conversing with Professor Jeremy Siegel, renowned for his extensive contributions to understanding historical equity performances. He posits that the current technological…

    July 5, 2023
  • Global Shifts: Navigating the Investment Terrain of Slower Economic Growth

    Over the past 40 years, investors have experienced the benefits of favorable market trends, marked by an amalgamation of population growth, favorable policy shifts, and increasing productivity. This tapestry, woven together with rising globalization, technology advancements, and regulatory reforms, gave birth to a vibrant economic environment, resulting in fruitful investment returns that surpassed historical norms. However, the investment horizon we gaze upon today is shifting. Fidelity’s Asset Allocation Research Team (AART) now suggests that the tailwinds of yesteryears may be fading, with headwinds of slower growth and geopolitical challenges emerging….

    September 14, 2023
  • Revival of Global Titans: The Renaissance of International Value Investing

    As Franklin Mutual Series suggests, the world of global investing is about to undergo a sea change. After years of lagging behind the tech-centric US market, international value stocks are showing signs of a revival. Decades of low interest rates, minimal inflation, and substantial central bank support have boosted US growth stocks to towering heights. However, the companies that fuel the traditional global economy – those international enterprises involved in finance, construction, and power – appear to be in the early stages of overtaking US firms that once dominated market…

    July 7, 2023
  • Riding the Wave: The Untapped Potential of Small-Cap Stocks in a Changing Economic Landscape

    The financial landscape is constantly changing, with market dynamics altering the performance of various asset classes. One asset class that has consistently caught the attention of investors is small-cap stocks. These are shares of public companies with market capitalizations typically ranging from $300 million to $2 billion. Despite their apparent underperformance heading into an economic downturn, there’s a compelling case for their potential to outperform the broader market, especially in the wake of a potential economic downturn. Historically, small-cap stocks have had a mixed relationship with the broader market. They…

    June 29, 2023
  • What is Factor Investing? 3 Best Factor-based Funds to Look At

    What is factor investing? Factor investing is an investment strategy that focuses on capturing the return premiums associated with specific characteristics or attributes of a security, such as size, value, momentum, quality, low volatility, etc. The idea is that these factors have historically provided higher returns than a broad market benchmark, and can be selected and combined to create a diversified portfolio. The approach is based on academic research in finance and economics and aims to provide a systematic and repeatable way to generate excess returns over time. What are…

    February 2, 2023

Leave a Reply

Your email address will not be published. Required fields are marked *