With the new December rate cut by the US Fed, I'm starting to look at more
speculative companies and industries. What's better fuel for rampant
speculation than a dovish policy environment? Now, especially in the more
riskier sectors and micro-caps there could be opportunities. Take a look at
the ratio of the IWC/SPX. This is the iShares Micro-Cap ETF divided by the
SP500. We're seeing it finally get some energy again. I have added the
inverted US interest rate to the chart with a 6-month lead to see the
connection with the performance of micro-cap.
Back in 2020, during Covid we saw interest rates at zero and a rampant
outperformance of micro-caps compared to the S&P 500. Obviously, this
relationship is logical but interesting to reiterate and refocus on, given
the small-caps and micro-caps haven't been very popular lately. Now, the
magnitude of the Covid ramp-up might not be equaled any time soon but there are definitely opportunities available today. Take a look at some of the more
speculative sides of the market below. While they look overextended, they
could well continue higher for a little while.
So, what do you think? Time to hit the gas on the speculative names?
Let me know!