Small-caps are off to a great start this year, clearly outperforming their larger counterparts. iShares Russell 2000 ETF (IWM – Free Report) is up 7.3% so far this year (as of Jan 10, 2019) compared with 3.6% of the S&P 500 and 5.3% advancement of the Nasdaq composite (read: Risk-On Trade is Back: ETFs That Gained the Most).
And why not? Fundamentals are in favor of small-caps, at least for the near term. The U.S. economy has been in great shape compared with several other developed economies. The latest jobs data corroborate the fact.
Let’s see which factors should propel small-cap growth ETFs higher in the near term.
Upbeat U.S. Economy
U.S. employers added 312,000 new jobs in December, after an upwardly revised 176,000 in November. The number breezed past market expectations of 177,000. The December jobs gain took total U.S. employment to above 150 million for the first time.
On the basis of this chartbuster number, Atlanta Federal Reserve lately upgraded its forecast for Q4 GDP data to 2.8%from 2.6%. The latest forecasts for fourth-quarter real consumer spending growth and real private fixed investment growth rose to 3.8% and 2.8% from 3.6% and 2.4%, respectively.
Dovish Fed Minutes
Fed chair Jerome Powell set a much-desired dovish tone. In fact, the latest Fed minutes show that the Fed will be flexible on policy, including balance sheet and is in no hurry to hike rates. Powell assured to take the downside risks of Fed policy tightening into consideration in future meetings.
Investors should also note that the Fed had lowered its interest rate forecast for 2019 to two hikes from three.Since several market participants including analysts at Rabobank believe that the implied probability of a Fed rate hike in March is now zero and recessionary fears are out of picture as of now, small-cap stocks