A trend that was in place for almost 100 years broke recently.

And being on the right side of its comeback could mean the difference between making enough to fund a down payment on a car… or on a house.

Here at Intelligent Income Daily, our goal is to bring you the best income-focused ideas in the market. So you can take advantage of unique opportunities to boost your bottom line in all market conditions.

Today, I’ll tell you what that century-long trend is, why it matters, and a simple move you can make to profit from something no one is talking about…

A Small-Cap Beatdown

For almost 94 years, research showed that small-cap stocks outperformed large-caps by 1.6% annually. Robert R. Johnson, Ph.D., a professor at Creighton University, analyzed data from 1926 through 2020 to prove this point.

If you invested $1 in 1926 into a small-cap stock, you would see a return of $41,978 in comparison to $10,945 for a large-cap.

But right now, the large-cap-filled S&P 500 is trading 29% above its historical average price-to-earnings (P/E) ratio. And the small-cap index is priced around 50% below its historical average. In fact, many small-cap indices are trading around all-time lows valuation-wise.

Is it because small-caps are a bad bet in this market? No.

It’s because 2020 reversed the trend. Temporarily…

Don’t Be Fooled By Short-term Trends

In the past three years, the large-cap index has outperformed small-caps by over 20%.

This reversal is an unprecedented anomaly that resulted from a stunted economy due to a worldwide pandemic.

You’ll see that reflected in the chart above, where the divide between the two lines grows wider.

Governments put artificial parameters in place to “rescue” their economies. As a result, big companies fared much better during COVID-19 public policy decisions and lockdowns.

Why?

Because Walmart and Home Depot were always allowed to be open. Their smaller peers weren’t. And when that was finally behind us, interest rates started to rise.

Large companies with easy access to debt were fine. Smaller companies with less options were not. See the pattern?

But now, a correction is taking place. And those who are paying attention will be rewarded.

The Simple Move You Should Make Today to Prepare

It’s no coincidence that BlackRock, the largest asset manager and a large-cap company, is now laying off 3% of its employees after losing $1.7 trillion in six months.

And of course, there’s Meta (formerly Facebook). Its value dropped $700 billion in 2022. And at the end of last year, it laid off 13% of its workforce.

Meanwhile, Apple and Amazon both lost over $800 billion and are facing major layoffs.

Because they thought the anomaly that started three years ago would continue… But one of the greatest bull markets of our time was manmade in favor of large-cap companies.

But now, reality is coming back in full force. And you can profit from it…

As I said above, small-cap stocks are trading 50% below their historical average.

In fact, many small-cap indexes are trading around all-time low valuations right now. That makes it the perfect time to buy.

For those worried about the volatile market, inflation, and a pending recession, small-cap stocks are the place to be.

Based on research by investment management company T. Rowe Price, U.S. small-caps tend to outperform large-caps during rising rates and inflation. They also do better historically during market recoveries.

Which many economists are predicting will come at the end of 2023.

This opportunity comes once in a lifetime. You will not see small-cap stocks priced this low at the base of this large of a reversal again in the near future.

That’s why today, I’m recommending readers consider the Vanguard S&P 600 Small-Cap 600 ETF (VIOO). Expenses are only 0.1% a year. That’s the cheapest in the industry. And it mirrors the index almost perfectly.

The index just has to return to its 2021 highs for investors to see 22% capital gains.

It also yields almost 1.5%. That’s about the same as S&P 500 large-cap ETFs. No sacrifice there either.

So don’t miss out on this opportunity. Few are going to see it coming. But by getting ahead of it now, you’ll be ahead of the crowd and thanking yourself for it later.

Happy SWAN (sleep well at night) investing,

Stephen Hester, CFA
Analyst, Intelligent Income Daily

Sponsored Link: At Wide Moat Research, our mission is to uncover the most attractive dividend-paying stocks in the world. And some of them offer higher yields and long-term growth prospects than an ETF can offer.

If you want to learn about individual dividend-paying stocks we think are on the sale right now and could benefit from this trend reversal, sign-up for our Intelligent Income Investor service here.

Source: Wide Moat Research