After a massive run that lasted over a year and a half, mega-cap “Magnificent Seven” tech stocks appear to be dead in the water.
Over the last month, the ETF that represents these top seven tech stocks (including Google, Apple, Microsoft, Facebook, Tesla, Amazon, and Nvidia) gained just 1.15% — less than half the return of the S&P 500 index.
That’s a sharp reversal of fortune, and it’s due to the massive “sea change” mega trend playing out in today’s stock market…
In short, the U.S. Federal Reserve beat inflation far sooner than expected. Now Jerome Powell is on track to cut rates and ease in for a “soft” landing sooner than expected.
As the Fed cuts interest rates, borrowing costs will fall in turn. That’s going to unleash a tidal wave of opportunity for smaller businesses, which have been held back by limited access to loans and debt.
That means Mag 7 stocks don’t have the same kind of advantage they’ve enjoyed these past few years.
And since investors have been so caught up chasing high-tech valuations, they haven’t realized that some small-cap stocks are now criminally undervalued…
As a sector, small-caps are now at the end of their second-longest period of underperformance since the Great Depression.
And following each of the last three record drawdowns (in January 1985, February 1991 and April 1999) small-cap stocks went on to outperform large-cap stocks by a substantial margin.
Indeed, we’re already seeing a massive increase in the Advance-Decline Ratio for small-caps, indicating the sector is starting to rally.
But before you dive into small-cap investing, there’s one critical fact you should keep in mind…
Buy the Stock. Not the Index.
As the name implies, the Russell 2000 contains 2,000 of the market’s smallest stocks.
Obviously, they’re not all going to be winners.
As my parents used to say: “Not everyone can be above average.”
Like any other index, there are likely only a handful of stocks we really want to own over the long term.
So if you want to take advantage of the real earning power of small-cap stocks, then you don’t want to own the index.
You can still use the index for short-term trades, of course! I’ve done that in the past, and will always consider a trade on an index or exchange-traded fund if one of my systems flags an opportunity.
But here’s the thing…
It pays to pick and choose when you’re buying individual small caps for long-term growth. And if you know what to look for, you can make a small fortune even when the “market” isn’t doing so well.
For example, back in the spring of 2022, the Russell 2000 was in free-fall and small caps in general weren’t looking too great.
But that’s when I recommended Voyager Therapeutics Inc. (Nasdaq: VYGR) to my 10X Stocks readers.
10X Stocks is a weekly VIP advisory where we target the largest possible stock gains you can make through your brokerage account (without options, crypto or other investment vehicles). We frequently buy small-cap stocks since they represent the market’s best opportunity for 10X gains over the next 1 to 5 years.
Voyager was one of those stocks, a relatively small biotech company that had just made a BIG hire.
The company appointed a new CEO — Dr. Alfred W. Sandrock Jr. — who had an unparalleled reputation for building billion-dollar biotech businesses and bringing blockbuster drugs to market.
To be clear, this hire wasn’t exactly headline news. Aside from a company press release, the stock is only followed by a handful of analysts and rarely makes the front pages of CNBC or the Wall Street Journal.
But if you know what to look for … if you know how to find an outstanding bargain with 10X potential … then VYGR would’ve already been on your radar.
So I sent a recommendation alert and sure enough, shares soared soon after.
Those who followed my recommendation got in for $5 per share … and locked in a 100% gain less than a year later.
All while the larger index eked out a gain of just 6% (barely enough to beat inflation).
Doubling Mega Trend Power
It’s clear now that the dramatic shift in Fed policies and interest rates will have sweeping effects across the market.
Big Tech stocks are already starting to take the backseat as small caps garner more and more attention from investors.
And now is the time to start getting picky with small caps for big profits.
To good profits,
Chief Investment Strategist, Money & Markets