Small-cap stocks are trading near a two-decade low relative to large-cap stocks. When the stock market rebounds next year, as is expected by many investment-bank strategists, those smaller companies may outperform. Below is a screen of analysts’ favorite small-cap stocks for 2023, culled from the S&P Small Cap 600 Index
which requires that companies be profitable for inclusion.
Great divide Following a stock-market rally from mid-October through November, stocks have since been sliding. Recession fears are mounting and the Federal Open Market Committee is gearing up for another interest-rate increase on Dec. 14. Strategists at BNP Paribas led by Greg Boutle, head of U.S. equity and derivatives strategy, reviewed 100 years of market-crash data and concluded investor sentiment would bottom in 2023. That and an expectation for a recession imply “a trough in the middle of next year,” Boutle said. That signals a rebound for the stock market as a whole, which might mean an even greater increase for small-cap stocks. Here’s why: The forward price-to-earnings ratio of the S&P Small Cap 600 Index is near its lowest point, relative to the large-cap S&P 500
since the end of 1999: