2024 has been a great year for stocks. However, the kickoff of the earnings season failed to provide an uplift in stocks. The excessive focus on large-cap stocks and artificial intelligence pushed up large-cap stock valuations to the point where earnings surprises could not uplift stock prices much more.
However, this changed when Trump won US elections in the middle of the earnings season. Markets started to focus on mid and small-cap stocks to find out high growth rates and lagging valuations. This combination has sparked a rally in recent weeks, also reflected in a better performance in this earnings season.
We posted in Oct 30 that earnings surprises don't necessarily guarantee outperformance. This can be seen clearly in the table below, where small-caps had the lowest earnings surprises yet the highest performance. The table also shows much higher growth rates of mid and small-cap stocks the last 12 months.
Q3 Earnings season till 30 Nov 2024, excluding outliers
Source: Investment Analytics
Investment Analytics monitors the top 1300 largest cap stocks in the US using deep-bottom-up analytics in combination with LLMs and has found a considerable number of promising companies outside main US Large-cap (Nasdaq 100, S&P 500 and Dow Jones). In the table below, it can be seen that small and mid-sized companies performed in most sectors. Yet, most notable is that the best-performing sectors are the ones being disrupted by technological change, where secular forces continue regardless of the stock market cycle.
Small and Mid-caps - Q3 Earnings season till 30 Nov 2024, excluding outliers
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