Global small-cap stocks resurgence put to the test by US recession concerns

'Broadening out' trade still stands

Concerns about a potential US recession have raised doubts about the sustainability of the recent small-cap stock resurgence, but some investors argue there is still room for further gains.

After a two-year period of apathy for small-caps, the Russell 2000 index had one of its best months in years in July, soaring past 10%, according to data from Morningstar Direct.  In contrast, the S&P 500 gained only 1.2% over the same period in US dollar terms, marking the US small-cap index's largest outperformance against mega-cap stocks since 2001. The so-called ‘broadening out' trade, with profit taking in the Magnificent Seven stocks being reinvested in previously unloved areas of the market, came on the back of softer US inflation data released earlier in the month.  US infl...