Despite grim economic news, share prices of small U.S. companies are rising rapidly and fueling a debate among investors about how much longer it can keep up. This according to a recent article in The Wall Street Journal.
The article reports that, even though the U.S. economy “shed a record 20.5 million jobs in April” and analysts are warning that the pain related to the coronavirus pandemic will last longer, investors are channeling money back into small-cap companies—“a striking phenomenon, given their fate, more than multinationals’, is intertwined with the health of the domestic economy.”
Part of the optimism, the article explains, is born of investor confidence as the Fed and the U.S. government work toward stabilizing the economy but adds that “the rally also appears to be driven by something simpler: bargain hunting.”
New York Life Investments portfolio strategist Lauren Goodwin reportedly suggests that the market’s rally might be “a bit of a head fake” and that while small-caps look relatively cheap now it doesn’t necessarily justify placing big bets on them, especially since they had weaker earnings and higher debt levels than large-caps before the coronavirus pandemic started.