Why It's Prime Time for Small-Company Stocks

Small-company stocks are cheap, and profits are rising. If you wait until the economy is strong, you’ll miss the best opportunities.

A person looks at investment history on a computer with a coffee mug.
(Image credit: Getty Images)

Small-company stocks are often the canaries in the market’s coal mine. Typically defined as stocks with a market value of less than $10 billion, their prices usually peak and then decline before large-company stock prices do in anticipation of a top in the economic cycle or a rise in interest rates. Similarly, “they tend to outperform early, when it seems like the worst is behind us,” says Sam Stovall, chief investment strategist at CFRA Research.

Lately, the canaries have been quite chirpy. Over the past six months, the Russell 2000, an index of small-cap stocks, gained a robust 9.1%. It led the S&P 500 index for part of that stretch, a good sign, given that the Russell has lagged the big-company benchmark in seven of the past 10 calendar years. (Returns and data are through March 31, unless otherwise noted.)

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Nellie S. Huang
Senior Associate Editor, Kiplinger's Personal Finance

Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.