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| Many of us have taken notice in the past when small cap stocks witnessed volume surges due to instability in the large cap markets but what makes this year’s outlook so much different? A majority of the investors in the market may not be familiar with the reasoning behind that statement. The market is a masterful design of weights and balances of endless knobs, switches, and buttons all being pushed and pulled and leveraged (visual) with large shifts in attention and in return liquidity. As one is pulled a bubble might pop up somewhere else, or a contortion which can throw off another component of the market.The Large Cap market as a whole sometimes can go through seemingly endless uptrends, but as an adverse reaction to the lifting has been one of the sharpest drops in large cap returns since June. The exact opposite in returns has been witnessed with small cap stocks soaring to its highest level average returns all year ending in December 2012 and picking up where it left off into 2013.
Small cap stocks witnessed more profits then the large caps last year and brought in an average of 19% compared to 11.8% for the large cap stocks. There are many different things that can be far “different” this time around from previous weakness in the large cap markets. A combination of raising taxes, cost of employees, and economic worries have all but frozen a majority of growth and profits but this is at a time when we are getting a big push from the Federal Reserve. As market instability’s start to show signs of rearing its ugly teeth, share prices decrease in value, and there is even less reason to stay grounded in the big board stocks. Ever changing capital gains, dividend taxes and employee policy changes are pushing many of the big board companies away from dividends which is why many are calling 2013 the year of mergers and acquisitions. More times than not when investing in small cap stocks there are far less revenues which leads to you actually paying more for the shares; the opportunity for average percentage gains has taken a very bullish swing. When the markets are shaky why would you pay more for large cap stocks with less of a chance to benefit from percentage gains? As the big board markets top off large scale investors and funds need to find a place to maintain a strong portfolio which leads them on a conquest for great technology and undervalued small cap stocks with significant future growth potential. Another great window of opportunity for the small cap/micro cap segments of the market is the fact that the season of Mergers and Acquisitions doesn’t favor one side or the other. Recent pressure on international tax safe havens by the Obama administration have created some shaky money in the market looking for a new home prior to the increasing assault on cutting the deficit and stagnant money dodging potential tax revenue. There could be a potential surge in value shopping taking place in the lower markets which I believe will include, unique patents, growth segments, and stocks trading at a big discount to value (undervalued). Is the Big Money planning on shifting into the micro-cap and small-cap segments of the market due to the recent pattern of changes? Many think so, if liquidity were to significantly increase in the micro-cap segment and the Mergers/Acquisitions wave strikes the micro-cap segment like many expect things could change overnight for the current small cap markets. |
