Small-Cap ETFs & Stocks To Outperform This Holiday Season

The holiday season is off to a great start this year buoyed by a digital shopping boom. Online sales jumped 28% to $3.7 billion on Thanksgiving Day and 23.6% to a record $6.22 billion on Black Friday, according to Adobe Analytics. This makes Thursday the fastest-growing day for e-commerce sales in history and marks the first Friday after Thanksgiving Day in history to see more than $2 billion in sales from smartphones. About 33.5% of e-commerce sales came from mobile devices compared with 29.1% in 2017.

Despite the optimism, the three major indices logged in their biggest losses in a Thanksgiving week since 2011, with the Dow Jones, the S&P 500 and the Nasdaq Composite Index tumbling 4.4%, 3.8%, and 4.3%, respectively. The decline came amid myriad woes, especially the ongoing trade tensions between the United States and China, global growth worries, FAANG sell-off as well as the worsening oil price rout.

However, if we go by history, stocks are expected to rise, recovering all their losses over the next month. This is especially true as the Dow Jones Industrial Average, the S&P 500, the Nasdaq 100 and the Russell 2000 indexes all generally climb between Thanksgiving and Christmas Eve, according to data from Kensho. The Dow Jones has returned an average of 1.93% in the time period since 1990, while the S&P 500 and the Nasdaq gained 1.77% and 1.66% respectively. The Russell 2000 has outperformed during the holidays, rising on average 2.46%.

The outperformance of the small-caps seems to hold true this year given that these pint-sized stocks are well insulated from international headwinds, which we are currently seeing. These are considered safe and better plays if any political issue or economic turmoil creeps into the picture. Additionally, the strength in U.S. dollar, which makes domestic goods more expensive overseas, will also support the small-cap surge. The Russell 2000 Index was down only 0.5% in a Thanksgiving week.

Further, a booming economy will provide a lift to stock prices. This is especially true as the American economy has been on a solid pace of growth with robust job creation, strong GDP growth, a 50-year low unemployment rate, the fastest pace of wage gains in nearly a decade, and rising consumer and business confidence. While third-quarter GDP growth slowed to 3.5% from 4.2% in the second quarter amid growing headwinds from trade, it marks the best two-quarter stretch in four years. With this, the economy is on pace for the fastest annual growth in 13 years.

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