Russell 2000 index enters bear market, small-cap stocks undervalued - potential long-term opportunity.
From Yahoo Finance: 2025-04-05 09:37:00
The Russell 2000 index fell 22% below its recent high after President Trump’s tariff announcement, officially entering bear market territory. Small-cap stocks are currently trading at their lowest valuations relative to the S&P 500 in decades, with the gap widening significantly since last year.
The average component of the Russell 2000 trades for a lower price-to-earnings ratio and price-to-book multiple compared to the S&P 500, despite large-cap stocks growing earnings slightly faster. Historically, when the gap between small-cap and large-cap stocks widens, small caps tend to outperform in the long run.
Expectations for Federal Reserve rate cuts have increased after the tariff announcements, with the median expectation now at five quarter-point cuts this year. While small-cap stocks may continue to be undervalued in the near term, investing in the Russell 2000 could present a long-term opportunity for patient investors.
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