The Russell 2000 (^RUT), which is made up of small-cap stocks, hasn't rallied the same way the big three indexes have (^DJI, ^IXIC, ^GSPC) this year. What could change the fortunes for small caps? Penn Capital Management CIO Eric Green says one thing that will help is getting a better idea of when the Federal Reserve will start to cut rates. He also points to credit spreads being at their cycle lows, saying "the credit market is suggesting we can get a really nice rally in small-cap equities."
Another potential catalyst is merger and acquisition activity. Green says that given valuations, "a large-cap company buying a small-cap company right now is very accretive." He goes on to say that he expects that we are at the beginning of an "M&A boom" that could lead to some small-cap companies being purchased by either a large-cap company or private equity.
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