Monday, November 27, 2006

Where is Russell 2000 headed?

Everyone in Wall Street says that large cap stocks will turn around this year. They also claim that end of rally for small stock is coming soon. So far, nothing happened like that. Small stocks are going up as they always did. Russell 2000 is up 17.7% for the year to date. However, stocks in the Russell 2000 face big risks from falling housing prices. Financial companies, including many regional banks, now make up more than a third of the index and may see big declines in fourth-quarter profits once those results begin to be released early next year.

For large-cap companies, most analysts expect profit growth to slow but remain solid in the months ahead. Analyst Ashwani Kaul of Reuters Estimates, which tracks Wall Street's earnings expectations, says his data indicate that profits at S&P 500 companies will grow about 10% in the fourth quarter. That would be modest compared with about 20% growth in the third quarter but enough to extend a record streak of double-digit growth to 18 quarters, according to Reuters Estimates.

If you have invested lot of money in small cap stocks, it's time to watch out. Nobody knows what is going to happen in next 6 months, but monitoring your (small cap) investments is the key.

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