Add These Small-Cap ETFs to Your Portfolio in Q2

By Zacks8 days ago

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Wall Street posted a decent first quarter of 2021. Notably, the Dow Jones Industrial Average and the S&P 500 surged 7.8% and 5.8%, respectively, in the period, witnessing their fourth straight positive quarter (per a CNBC article). Moreover, the mid-cap specific S&P 400 climbed 13.1% in the same period.

Markedly, the two small-cap centric indexes, namely the Russell 2000 and the S&P 600 rose 12.4% and 17.9%, respectively. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and are therefore well-positioned to outshine when the economy improves.

Factors That Can Drive the Small-Cap ETF Rally in Q2

Importantly, the second quarter is expected to benefit from the impressive progress made in the previous quarter. Notably, the passing of the $1.9-trillion coronavirus relief package, Feds decision to maintain rates at near-zero level until 2023, accelerated coronavirus vaccine distributions and the reopening of global economies help strengthen the optimism for economic recovery.

Notably, the central bank raised its economic growth outlook considering the vaccine and stimulus optimism and it also expects higher inflation this year. Furthermore, there are several new economic data releases, which are pointing toward economic recovery.

The central bank lifted its forecast for GDP growth to 6.5% in 2021 from 4.2% projected in December 2020. It has also raised the economic growth forecast from 3.2% to 3.3% for 2022. Moving on, growth is likely to cool down in 2023 to 2.2%. The Fed predicted the longer-run growth measure at 2.3%.

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