2 Growth Stocks to Buy for a New Bull Market

By TradeSmith Research Team

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Welcome to the new bull market.

Stocks surged across the board in November — just as we said they would. The S&P 500 put in a face-melting performance by gaining 8.9%. That’s one of the best November returns in the past 100 years.

While that’s a stunner, what’s going on in the shunned small-cap land is even more impressive.

After underperforming for many months, smaller companies are finally having their renaissance. And we believe there’s a lot more room to go… well into 2024.

Today, we’re going to size up the latest rebirth in small caps, helping you understand why they’re set to keep climbing.

But most importantly, we’ll cover the market sectors you should absolutely have exposure to for this new bull market.

Hang around until the end, and you’ll learn two of my favorite all-star stocks surging right now…

Why Small-Cap Stocks Are Surging

Sometimes you have to look backward to see the future.

Back on Oct. 19, here at TradeSmith Daily, I made the data-driven case to buy the ultra-unloved small-cap space. It was a bold call then, as interest rates were surging… and higher interest rates mean painful loan costs for small-cap companies.

When it comes to investing, timing is everything. And while we didn’t know it then, that day would mark the top in interest rates.

As you can see below, the 10-Year yield peaked at 4.99% and fell to 4.22% last Friday:

Source: FactSet

That’s a monster-sized macro move of 77 basis points in roughly six weeks.

Any time rates move that fast in a straight line, it’s going to have an impact on other asset classes… namely equities.

When rates surge, it chokes off growth, harming smaller undercapitalized firms more than cash-rich large caps.

When rates plunge, like lately, it has the opposite effect…smaller firms see added leverage and margin expansion as the cost of capital drops.

The chart below shows this beautifully. The S&P Small Cap 600 has ramped 10.5% since Oct. 19, outperforming even the S&P 500’s 9% gain.

And lately the outperformance has been more dramatic. Small caps are up 2.8% in the last week, more than triple the move of large caps at 0.8%:

Remember to “save a bear, ride a small-cap” under these conditions!

But when you dive below the surface of the market, you’ll find new leaders.

The Sector Leaders of the New Bull Market

I calculated the sectors’ performance since the Oct. 19 rate peak, and the top groups are all set to continue benefiting from this collapse in interest rates:

  • Discretionary stocks have rallied 14.7%
  • Financial companies have jumped 11.7%
  • And Real Estate, possibly the group most levered to lower rates, have catapulted 11.4%

Folks, these three areas of the market are benefiting mightily from lower rates. And it makes sense.

  • Discretionary stocks should advance given lower capital strain on consumers and businesses alike.
  • Financial firms benefit as deal flow picks up, the yield curve steepens, and mortgage underwriting ramps… not to mention Financials historically pop the most after the final Fed hike is in.
  • And then there’s Real Estate, which has been frozen due to rising yields. That noose loosens as capital costs drop.
I like all three of these sectors over the medium term in this lower-rate backdrop.

Let’s now drive it all home with two of my favorite stocks benefiting heavily right now.

2 Superstar Stocks to Keep on Your Radar

It’s one thing to understand market drivers and how to position broadly… it’s another to focus on all-star stocks.

The latter is the goal of all serious investors, myself included!

Back on Oct. 31, I gave you the three easy steps to find superstar stocks. The drivers are simple:

  • Focus on positive revenue growth
  • Chase positive earnings growth
  • And respect institutional support
One company that exudes all of these traits, which I showcased back then, is popular shoemaker Deckers Outdoor Corp. (DECK). You can see a detailed analysis of that company here.

The No. 2 all-star name is financial powerhouse S&P Global (SPGI).

Again, in late September I profiled the earnings and sales figures of why this name is perfectly suited for lower interest rates.

Look how both of these outliers have towered above major index returns since the rate peak on Oct. 19.

Deckers ripped nearly 35%… And S&P Global ramped 18%:

This, folks, is why it’s paramount to focus on the best stocks out there.

Bet on small to win big! Zero in on top-notch Discretionary, Financials, and Real Estate companies benefiting from falling interest rates. Each of these areas are climbing higher and have a healthy runway into next year.


Lucas Downey,
Contributing Editor, TradeSmith Daily