The stock market is always looking for a reason to rally. It’s at an all-time high, while economic fundamentals (although improving) are still poor.
As investors, if we wait until the economy looks good — we’re late to the game.
The unemployment rate is still near its worst reading on record. That means for stocks, we’re still in the early innings … and one category of stocks in particular has the most to gain.
Falling Unemployment Rate Points to a New Bull Market
Stock prices reflect investors’ expectations of the future. When things seem like they can’t get any worse, stocks tend to soar.
The unemployment rate reached 14.7% in April, its highest on record. Since then, it has declined each month, reaching 10.2% in July. Although an improvement, the July rate was still higher than the 10% level reached during the 2008 financial crisis.
Some may interpret this as being bad for stocks … but history suggests otherwise.
There is a pretty clear relationship between the unemployment rate and future gains for stocks:
(Source: Bloomberg.)
Over the past 30 years, when the unemployment rate peaks, stocks rally … for years.
The unemployment rate is just starting its decline, and the U.S. stock market is already at record highs. History suggests we will have a bull market for years to come as the unemployment rate approaches lower levels.
Why Small-Cap Stocks Are the Place to Be
Right now, buying the biggest companies isn’t the best way to capitalize on this multiyear bull market.
The largest companies have contributed the most to the market’s gains over the recent years, meaning small stocks need to play catch up:
Large-Cap vs. Small-Cap Stocks
(Source: Bloomberg.)
Over the past five years, large-cap stocks (the S&P 500 Index) have gained over four times more than small-cap stocks (Russell 2000).
The thing is, over the long haul — small stocks outperform large stocks. Between 1926 and February of this year, small-cap stocks returned an average of 11.65% per year, while the average return for large-cap stocks was only 9.83%.
The Future Is Brighter for Small Caps
The future looks bright for stocks in general, but small-cap stocks have the most to gain.
That’s why Ian King has created a brand-new research service — one that pinpoints small-cap stocks on the verge of shooting higher. Beta testers of this service have already had the chance to lock in gains of 95%.
Ian and I are getting ready to release this service to you next month. So, make sure to follow us here in Smart Profits Daily for more information coming soon.
Regards,
Analyst, Automatic Fortunes
