Goldman Sachs strategists are out with their 2024 preview for Russell 2000 (RUT) and small-caps stocks in general.
Strategists anticipate further gains for US small-cap stocks, citing a combination of favorable factors such as current low valuations and a positive economic outlook.
The Russell 2000 small-cap index is projected to deliver a return of approximately 9% over the next six months and 15% in the next 12 months, according to analysts at Goldman Sachs. Goldman’s forecast for the large-cap S&P 500 sees it rising by 7% to 5100 at the end of 2024 (total return of 9% including dividends).
Despite a notable rally in recent months, the Russell 2000 remains nearly 20% below its peak in November 2021, in contrast to the S&P 500, which is less than 1% below its January 2022 peak.
“Positioning data suggest that much of the recent Russell 2000 rally has been driven by buying in 'macro products' such as index futures and options rather than purchases of individual small-cap stocks,” analysts noted.
The strategists highlight that small-caps are currently trading at low valuations relative to historical levels, as indicated by the Russell 2000 price-to-book multiple.
The primary driver of small-cap returns is expected to be US economic growth, although these stocks have exhibited increased sensitivity to interest rates in the past two years.
While acknowledging that the biggest risk to the small-cap outlook is a deterioration in investor expectations for US economic growth, the strategists note that the lower valuations offer a cushion for the Russell 2000 even in the event of weaker-than-expected growth.
Russell 2000 closed at 1,989.01 on Monday and is down 1.9% YTD.