Small-cap stocks could see a monster rally ahead if they break above a key level. The Russell 2000 hit a high of 2,441.72 on Monday, just a hair below the November 2021 closing high of 2,442.74 before pulling back Tuesday and Wednesday. The level reached earlier in the week was also less than 1% below the intraday record that was made three years ago. On Thursday, it fell about 0.6%. If the benchmark manages to break above its highs from three years ago, Wolfe Research thinks a rally could ensue. “Should they shake off the overbought conditions and do so however, we don’t think it’s crazy that 5 – 10% of upside could follow as investors chase the breakout,” strategist Rob Ginsberg wrote. Small caps have been on a tear since the presidential election last week, after Donald Trump secured a second term. Investors are betting the incoming administration can lower taxes and ease regulations, thus boosting smaller businesses. The Russell 2000 is up about 4.5% since the election, outperforming its large-cap counterparts. The Dow Jones Industrial Average is up 4% during that time along with the Nasdaq Composite, while the S & P 500 has gained 3.4%. .RUT 5Y bar Russell 2000 less than 1% from record The technical strategist noted that move may not happen immediately. “As we have come to know though, Small Caps never make it easy. With internal and external overbought conditions flashing, it’s likely we see a consolidation before they try and punch through to new highs,” he wrote in recent note. Investors can gain exposure to small-cap stocks through the iShares Russell 2000 ETF (IWM) , another proxy used to track these smaller names. The fund is up 16% year to date and more than 7% this month. — CNBC’s Yun Li contributed to this report.
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