Small-cap stocks, like Vanguard Russell 2000 ETF, could outperform in 2025 due to falling interest rates.

From Nasdaq: 2024-12-27 06:22:00

The recent Federal Reserve interest rate decision caused a slight decline in the stock market, but major indices like the S&P 500 and Nasdaq are still close to all-time highs. However, small-cap stocks, represented by the Russell 2000 index, have been hit harder, down nearly 9% from their recent peak. Despite this, small-cap stocks could outperform in 2025, making the Vanguard Russell 2000 ETF (NASDAQ: VTWO) a potential strong investment choice. The valuation gap between small-cap and large-cap stocks has widened, but falling interest rates in 2025 could favor small caps due to lower cost of capital and increased investor interest.

The Russell 2000 started 2024 with a wide price-to-book valuation gap compared to the S&P 500, but the gap has continued to grow throughout the year. While the S&P 500 has seen a total return of 26% in 2024, the Russell 2000 has only managed 12%, highlighting a significant performance difference. Falling interest rates in 2025 could be a catalyst for small-cap stocks, as they are more reliant on borrowing money and could benefit from a more business-friendly environment under the incoming administration. Investors should consider the potential for small-cap stocks to outperform in the coming years based on historical trends.

To further explore potentially lucrative investment opportunities, analysts are issuing “Double Down” stock recommendations for companies with strong growth potential. Past examples include Nvidia, Apple, and Netflix, which have seen significant returns after receiving these recommendations. Investors are encouraged to consider these opportunities before they potentially experience significant growth.



Read more at Nasdaq: This ETF Is Approaching Correction Territory — and Could Be One of the Best Investment Opportunities of 2025