It’s been a rough year for small-cap stocks.
But it’s worth your time to look at the hottest small-cap stocks because these companies offer more potential growth than large-cap stocks.
Usually even the hottest small-cap stocks — companies whose market caps are between $300 million to $2 billion — lag behind large-cap stocks during times of economic uncertainty. But they tend to do well during times when the economy is rebounding.
In which case, let’s take a look at two of the hottest small-cap stocks that could have more big gains in store…
If you compare the S&P 500 to the Russell 2000, you’d typically notice that they move along the same general path. As a matter of fact, they have had a correlation of 97% dating back three decades.
But over the past year, I’ve repeatedly noticed small-cap stocks lagging behind the overall stock market. Not just by a small fraction, but by a huge percentage.
You might have already guessed it: the U.S.-China trade war.
The stocks that make up the Russell 2000 are substantially smaller — and less stable — than the giants that make up the S&P 500. This means smaller stocks are much more vulnerable to trade wars than large-caps stocks.
If you look at both indexes, you will notice that the Russell 2000 peaked on January 17, while the S&P 500 continued to trade higher for nine more months.
However, over the past few trading sessions, something began to change…
While it could be an aberration, the Russell 2000 is starting to price in the fact that the U.S.-China trade war could be over soon if former Vice President Joe Biden wins the upcoming U.S. presidential election.
Disclaimer: I’m not saying Biden will or won’t win. I’m just reporting how the markets are reacting.
But since the Russell 2000 is starting to price this in, now could be a good time to start watching — and trading — the hottest small-cap stocks in the Russell 2000.
The two tickers I’m revealing today could continue to trade even higher next quarter, offering traders and investors major potential upside.
Do you like trading small-cap stocks? Which names are your favorite and have you ever traded either one of the tickers I gave away in today’s video? Share your thoughts in the comment section below.