Kalle Rovanperä via Instagram story on May 31, 2023
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Open Season for Small Caps
A Soft CPI reading this morning and a nice pop in the Russell 2000 Small Cap Index today remind us that seasonally speaking, small caps are set up for their annual yearend rally into Q1, often referred to as the “January Effect,” where small caps outperform large caps in January.
Small caps have been struggling for two years now, hurt by non-transitory high inflation, the most aggressive rate-hiking regime we’ve seen since the 1980s, geopolitical turmoil with war on two fronts, fallout from pandemic and post-pandemic economic and labor woes. And the Russell 2000 small cap index recently hit a new multi-year low at the end of October.
As we point out on pages 112 and 114 of the Stock Trader’s Almanac, most of the “January Effect’s” small cap outperformance takes place in the last half of December when tax-loss selling abates. Our annual November stock basket published last week for members contains some brand-new, undervalued, off-Wall-Street’s-radar small cap picks.
As you can see in the accompanying chart the R2K has been tracking the pattern quite well since July and it looks like the small fry are coming out of hibernation just in time for small cap stock hunting season. Small cap stocks are facing several obstacles mentioned above, but they rallied strongly off the October 27 low with the rest of the market.
As illustrated in the chart, small caps exhibit some chop from late-October through mid-December. Our small cap stock picks have historically done well as long as you honor the buy limits and stop losses. Last pre-election year in 2019 R2K had a nice rally from October to January before it was crushed by the pandemic.
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I should have told you when we were younger
Talk quenches thirst, but does nothing for hunger
And I'm starving
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omg are we bouncing in your inbox. hiii omg hiiiiiii ^_^
ID: a slowed-down looping gif of a cat bouncing on its hind legs and waving its front paws around. End ID
GROUP CATGIRL BOUNCING SESSION RN !!!!! BOUNCYBOUNCY YIPPIE YAYAY WEEE BOING YAY
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Marty why now they gonna start the third with a PP? 😭
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