"The Wall Street Wizard": Small caps may rise more than 15% in August!

With the decline in the technology sector, small-cap stocks are taking over the summer stock market.

Tom Lee, co-founder of Fundstrat known as the "Wall Street Whiz," said that if history is any guide, the Russell 2000 Index, which focuses on small-cap stocks, could rise by 15% or more in August.

The Russell 2000 Index has already seen significant growth throughout July, with the index climbing over 10% by Thursday's close.

Lee mentioned that confidence in the upcoming Fed rate cuts (expected to start in September) is driving the rebound in small-cap stocks. These companies have more debt burdens and will benefit the most from lower borrowing costs. Conversely, persistent high interest rates are considered one of the reasons for the poor performance of the Russell 2000 Index in recent years.

Lee also noted that the small-cap index is rising gradually, rather than sharply and unsustainably. He pointed out that the Russell 2000 Index has risen 1% in 10 out of the past 11 trading days.

He said, "This has happened nine times since 1979, and even in bear markets, we have seen 100% growth a few months later. The average increase in the 12 months following this scenario is 40%."

Lee previously predicted that the rebound of the Russell 2000 Index would last for about 10 weeks, starting in August, with a final increase of 40%. Now his forecast is more specific, emphasizing that August is a particularly significant period of increase.

He stated, "In August, small-cap stocks may see growth of over 15% as they have been significantly lagging behind. The trend of the past two weeks indicates that small-cap stocks may be at the beginning of a significant uptrend."

In addition to the rate cut factor, Lee also mentioned the upcoming U.S. election prospects, which will help drive the rise of the Russell 2000 Index.

Lee pointed out that the betting market shows the possibility of Trump being re-elected, which may attract investors to small-cap stocks as Trump's policies could promote regulatory relaxation, mergers and acquisitions, and the development of regional banks.

On the other hand, as the artificial intelligence boom cools down, Lee believes that investors are turning to investments outside of large-cap stocks, and investors focusing on free cash flow or price-earnings ratio will find small-cap stocks more attractive.

However, not everyone agrees with Lee's optimistic view. Despite the surge in the Russell 2000 Index, some on Wall Street are skeptical about the sustainability of this rebound, given the poor earnings, revenue, and profit margins of small-cap stocks.

Furthermore, Barclays Bank questions the potential impact of the Fed rate cuts on small-cap stocks, stating that historically, small-cap stocks tend to underperform when monetary policy first loosens