Midyear outlook: North American small-cap equities
The Russell 2000 is still sharply discounted, yet catalysts remain scarce for the gauge to rerate higher — though easing trade tensions and lower rates are the most obvious possible sparks that could ignite some rally. Our Fair Value Model hints that the index's multiple still has some room to rise based on rate consensus, but anemic macro forecasts are still driving a disconnect between the regression's implied growth and bottom-up consensus — the former remains concerned about the weight of trade tensions on the US economy, while the latter appears to expect a swift resolution to tensions. Credit markets continue to sound an all clear, though rising distress in energy is worth watching.
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