This month, Jason Weaver discusses consumer sentiment, small caps vs. large caps, and biotech.
CONSUMER SENTIMENT
Consumer sentiment has rebounded a bit after its trough in June 2022
Higher rates, higher energy prices, and geopolitical tensions have tamed down sentiment this Fall.
When investors feel gloomy and worried, their natural tendency is to sell risk assets.
On average, buying at a confidence peak returned 3.5% while buying at a trough returned 24.0% in the following 12 months.
SMALL CAPS VS LARGE CAPS
Over the last few years, the dispersion between small cap valuations and large cap valuations has widened meaningfully.
Large cap stocks have driven the majority of returns.
Small caps are trading at roughly a 20% discount when compared to the long-term average.
Historically, when small caps have traded at low valuations, they have had strong future performance.
BIOTECH
Biotech stocks have trended lower for several years.
Inflation, rising interest rates, geopolitical instability, and threats of recessions around the world all have driven down biotech company valuations
In the last year, 100s of biotech companies have been in the unusual position where their total share value is lower than the amount of cash, they have on hand
When a company is trading below cash, this can attract investors looking for a bargain.
However, it can also be a sign of stormy waters in store for the company.
