Is It Time to Bargain Hunt Small-and Mid-Cap Stocks Amid Market Turbulence?

Thriving in Turbulent Markets with Small- and Mid-Cap Stocks

Navigating turbulent markets can be challenging, yet they often present opportunities for savvy investors. Bargains unearthed during these times can potentially enhance your portfolio’s long-term returns. Amid recent market instability, small- and mid-cap stocks have experienced substantial impacts, leading many to ask, is it time to bargain hunt?

Unpredictable policies from Washington, the onset of global tariff salvos, and diminished consumer and business confidence have triggered recession fears and destabilized the stock market.

Impact on Large versus Small and Midsize Companies

From its peak earlier this year, the large-company S&P 500 Index fell 17.5% through April 7. In contrast, shares in small and midsize companies have suffered larger and longer-lasting declines.

Since peaking in November, the Russell 2000, which measures small-cap stocks, slipped 25.5%. This represents bear-market territory, defined as a drop of 20% or more. In the same period, the Russell Midcap Index fell 19.4%.

Current Market Conditions for Small- and Mid-Cap Stocks

Despite initial gains following the delay in implementing some proposed tariffs, sustained rebounds in small- and mid-cap stocks have proven elusive. At present, these shares are more affordable compared to large-company stocks than they have been for decades. However, prices could still fall further.

As Bill Hench, Head of the Small-Company Team at investment firm First Eagle, puts it, “if you’re wrong, you’re falling out the first-floor window and cutting your knees. You’re not going to get killed.”

Factors Influencing Small Companies

Two significant challenges faced by smaller companies—high interest rates and rising inflation—have significantly eased from peak levels. However, there are ongoing concerns that a trade war and mass layoffs of federal employees could trigger an economic slowdown, potentially pushing stock prices even lower.

Therefore, it’s crucial to be selective when investing. For instance, leaning more towards midsize companies can offer a balance between potential high returns if the economy grows and providing stability if the economy weakens.

Recommended Mutual Funds and Exchange-Traded Funds

Outlined below are a few recommended mutual funds and exchange-traded funds for potential investment.