The S&P 500 has logged solid returns so far in 2024. But this Wall Street pro sees a "particular opportunity" in small-cap stocks heading into the remainder of the year.
In a note Wednesday, UBS's Solita Marcelli, chief investment officer for the Americas unit, highlighted three themes that will create a favorable environment for stocks. They include Federal Reserve rate cuts, robust profit growth and the secular growth trend fueled by artificial intelligence.
"Recent data suggest the U.S. economy is gradually slowing down, but not too abruptly," Marcelli said. "While some may interpret weaker numbers as a deterioration in the growth picture, we believe it is more indicative of a healthy deceleration that should allow for further disinflation, enabling policymakers to cut rates."
Be sure to read how to adjust to changing market conditions, with IBD's new exposure levels.
Second, UBS believes that upward revisions in companies' earnings forecasts and expanding profit growth outside megacap tech stocks during first-quarter earnings season are bullish for the S&P 500 outlook.
AI Story Remains Intact
Finally, Marcelli says the artificial intelligence growth story remains intact. She said: "We believe the technology will be a key driver of growth in the years ahead as it continues to disrupt and transform businesses and industries."
Marcelli is bullish on the stock market's prospects as the year progresses. But "a particular opportunity in small-caps stocks supported by the beginning of the Fed's easing cycle," she said.
Small caps tend to lag in a higher-interest-rate environment. However, a big drop in the 10-year Treasury yield this week hasn't been much help to small caps.
IBD's outlook also maintains a mostly positive stance in today's stock market. IBD recommends an exposure threshold of 60%-80% for stock investors. That means that the market is showing more signs that an uptrend is gaining steam. In a weakening market, a drop in exposure to this level means you cut back on stock buys. Also, take profits on at least some winners.
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S&P 500 Winners And Losers
For the year, the S&P 500 is up 10.9% through June 4, while the small-cap Russell 2000 is only up 0.3%. The Dow Jones Industrial Average and tech-heavy Nasdaq composite logged year-to-date gains of 2.7% and 12.3%, respectively.
The S&P 500 climbed 0.9% Wednesday midday, just shy of record highs.
Year to date, the biggest winners on the S&P 500 are Super Micro Computer and Nvidia, with powerful gains of 171% and 135%, respectively. Super Micro rallied 4.2% midday Wednesday, while Nvidia stock is up 4.1%.
On the downside, 2024's biggest losers on the S&P 500 are SolarEdge Technologies, Epam Systems and Dow Jones chip giant Intel. They posted respective losses of 49%, 41% and 40% year to date.
Be sure to follow Scott Lehtonen on X, formerly known as Twitter, at @IBD_SLehtonen for more on growth stocks, the S&P 500 and the stock market today.
