Large-Caps Lag, Small-Caps Lead

Profit from the Pros Large-Caps Lag, Small-Caps Lead It was an uneven day in the market yesterday. But large-caps, as represented by the Dow, were down for the day, while small-caps, as represented by the Russell 2000 Index, were up. Trade fears again weighed on stocks. But the markets showed their resilience once again. But I should note the stark contrast between the behavior of large-caps and small-caps. I think all stocks look great right now. But small-caps do have a few distinct advantages. For one, the corporate tax cuts are likely to have a greater impact on small-cap companies. Why? Because many larger companies employed complex strategies to reduce their effective tax rate down to the mid-twenties even though the actual tax rate was 35%. But many smaller companies did not have the resources or the opportunities to do that and were stuck paying a much higher effective tax rate. So now with the corporate tax rate at 21%, those smaller-cap companies will see a significant tax savings and they won't need to employ a team of lawyers and accountants to do it. That means bigger EPS gains. And that money will likely be used to fund their growth. Add in the individual tax cuts and that means more people spending more money which means more sales. And again, with each dollar in sales being worth more, a larger percentage will flow to the bottom line. The other advantage small-caps have over large-caps stocks right now is less potential downside exposure if trade tensions heat up. Why? Because smaller-cap stocks, in general, have less international exposure. Since smaller-caps generally do a larger portion of their business domestically, foreign tariffs will take a smaller toll on their sales. And for those that don't have any foreign sales, the trade tensions have no impact on them. If anything, the higher cost of imported foreign goods into our country will only serve to make their domestic goods even more attractive. These are two of the overriding themes underpinning small-cap stock right now, and why they have been leading the market this year, and why they should continue leading the market in the foreseeable future. Remember, buy the dips and buy the rallies. See you tomorrow, Kevin Matras Executive Vice President, Zacks Investment Research Sponsor [3 Hot Marijuana Picks to Buy Before The Fall]( In the first two months after California dispensaries started to legally sell recreational marijuana on January 1, companies in the cannabis industry increased by nearly $2 billion in value. And now Canada is set to legalize recreational marijuana by this Fall. Savvy investors are already grabbing positions in these 3 picks that are set to soar once the announcement is made. [Get the picks now>>]( Most Popular Articles from Zacks.com [Buy 4 Stocks With Rising Cash Flows to Enrich Your Portfolio]( A solid cash position lends a company the flexibility to make decisions, the means to invest and the fuel to run its growth engine. [Read More »]( [5 Top-Ranked Small-Cap Stocks on Sale]( The Russell 2000 crossed the S&P 500 in mid-March and there was no looking back for the small-cap gauge since. [Read More »]( [Small Drugmakers Edging Out the Bigshots: 7 Stocks to Buy]( The specialty-pharma sector is where the smaller drugmakers are performing better than their larger counterparts. [Read More »]( [5 Top Stocks to Gain From Escalating Trade War Tensions]( Stocks with solid growth narratives and domestic producers of goods that do limited business in China stand to gain from the ongoing trade tensions. [Read More »]( [How Does the Recent Rally Affect Tesla's Capital Position?]( Turning to the equity and debt markets gets easier as the share price rises. [Read More »]( Sponsor [Want Better Returns and Sounder Sleep?]( Large-cap stocks offer greater resistance to volatility. They're less likely to be rocked by market dips, scary headlines, or the loss of a single business contract. Yet some of these big, stable companies are little known and have significant growth potential. For example, Zacks' unique large-cap strategy closed a gain of +112.4% in under 4 months. If you'd like to see the latest stocks in our portfolio there's a special advantage for doing so by Sunday, June 24. [Look Into Zacks' Best Large-Caps Now >>]( [Bull of the Day: Align Technology (ALGN)]( Shares are up 155% vs the S&P 500 at +14% in the past year, giving early investors a lot to smile about. [Read More »]( [New Zacks Strong Buys for June 20th]( Here are 5 stocks added to the Zacks Rank #1 (Strong Buy) List today. [Read More »]( [Customize Your Profit from the Pros Delivery]( Connect with Us: [Facebook]( [Twitter]( [StockTwits]( Contact Info: Phone: 1.800.767.3771 ext. 9339 Email: [support@zacks.com](emailto:support@zacks.com) [Get it on Google Play]( [Get it on Google Play]( [Terms]( | [Privacy]( | [Unsubscribe](