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Small Caps Build Steam And Biotechs Remain Well-Positioned


  • Economic optimism has broadened the market rally.
  • Small caps had lagged significantly and are now catching-up as they narrow the performance gap.
  • The Federal Reserve driven market rally can persist till there is evidence of an uneven or slower economic recovery, perhaps in the fourth quarter.
  • Biotechs and pharma appear to be well-positioned as the quest for a vaccine and a potent drug treatment continues, and when successful it can be a market accelerant.
  • The stock market is overbought and can consolidate in June, but the market rally has room to extend into the third quarter.
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Market Pulse

The question of whether it's a new bull market rally or just an intermittent bear market rally doomed to end later this year will most likely be decided late in the third quarter or during the fourth quarter when enough evidence on the durability of the recovery pace is forthcoming. But whatever one's viewpoint, it is hard to ignore the present rally.

As the economic gates are being reopened, it is releasing a tide of pent-up demand that will lead to a geyser-like spurt in economic activity, boosting the economy and providing support to the stock market. There is an ongoing rotation of investor money into economically sensitive sectors and lagging segments of the market. If the economy is viewed through the lens of a post-recession recovery rather than the darker lens of an ongoing recession, then it would suggest a fuller exposure to stocks.

There is also a nagging fear that perhaps the stock market is moving too quickly in giving full credit to a rapid, V-shaped recovery. For context, the Nasdaq index has eclipsed its previous high from mid-February and recorded its new all-time high, while the S&P 500 is close to its early Feb 2020 level. As the summer matures, evidence can emerge of an uneven economic recovery. Besides, the pockets of COVID-19 infection can resurface strongly during the fourth quarter and combine with the influenza flu season to potentially create additional impediments to economic progress.

But for now, there is a gust of economic optimism that continues to sweep through the stock market.

Federal Reserve Bull Market

This gust of economic optimism has combined with the enormous Federal Government and Federal Reserve stimulus sloshing in the economy. The $2+ trillion government stimulus package will in all likelihood be accompanied by a second stimulus

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This article was written by

Tarun Chandra, CFA profile picture
A healthcare growth portfolio with a record of consistently strong returns

I have worked as an Analyst on both the Buy (Asset Management) and Sell (Investment Brokerage) sides, as well as in Strategy and Finance roles for technology services companies. For many years, I have been publishing risk-adjusted, return-driven quantitative model portfolios.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Although there are no personal positions, some stocks mentioned can most likely be already part of the portfolios of family and associates or can be bought/sold in the next 72-hours. Stocks mentioned may already be part of the various model portfolios. As always, kindly do your due diligence. The biotechs and the small-cap/early mid-cap market segments carry a higher risk of losses than the broader market. Opinions can change with time and additional data, with no obligation to update. Companies mentioned here may not be favored in the future as market trend changes and/or new information emerges, and no relevant portfolio updates will be provided unless you are a model portfolio subscriber. Graycell Advisors or Prudent Biotech or associated names and entities are not a registered investment advisor (RIA) and publishes quantitative-driven model portfolios for investors and RIAs. Some or all of the companies/stocks mentioned in the article may be in the past, now, or in the future, be part of the various model portfolios for subscribers. Past performance is not a guarantee of future results. The information here is only provided for a general informational purpose and not as a recommendation, and is not guaranteed to be complete or accurate.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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