Fundamentals same, but irrational exuberance drives meteoric rise in mid and small-cap stocks
The recent surge in mid-cap and small-cap stock prices appears to be driven more by investor optimism rather than fundamental improvements.
There is scant evidence to attribute the recent remarkable mid-cap and small-cap stock price surge to fundamental business improvements. In many cases, these fundamentals have actually deteriorated. Instead, the rally seems to be fueled primarily by investor over-optimism, driven by robust past performance in these sectors. This exuberant sentiment is reflected in several key...
There is scant evidence to attribute the recent remarkable mid-cap and small-cap stock price surge to fundamental business improvements. In many cases, these fundamentals have actually deteriorated. Instead, the rally seems to be fueled primarily by investor over-optimism, driven by robust past performance in these sectors.
This exuberant sentiment is reflected in several key indicators:
1. Significant price jumps in numerous mid-cap and small-cap stocks.
2. Large capital inflows into mid-cap and small-cap mutual funds.
3. An influx of new retail investors participating in these funds.
The strong recent performance of mid-cap and small-cap indices has likely amplified return expectations among retail investors, even in the absence of compelling fundamental changes.