Inflation Slows Small Cap Rally, But SMCP ETF Offers Strategic Entry Point

The AlphaMark Actively Managed Small Cap ETF (SMCP) presents an intriguing opportunity for investors looking to capitalize on small-cap companies, despite the recent slowdown caused by inflationary pressures. The ETF offers a diversified approach to investing in small-cap stocks, which are known for their potential for significant returns but also come with increased volatility.

Two key advantages make SMCP a sensible choice for investors. Firstly, the ETF is actively managed, meaning it is guided by professionals who can navigate changing market conditions. Secondly, its diversified nature helps mitigate the risk as no single company can singularly affect the entire portfolio.

Small-cap stocks typically attract investors due to their robust upside potential. However, they have not always performed well, particularly in the face of elevated benchmark interest rates. According to Reuters, small caps began to surge in late 2023 due to speculation about potential rate cuts. This surge was short-lived as inflationary pressures continued to persist.

Recent data from the Labor Department indicate that while the number of new jobless claims has decreased, the total number of people seeking government assistance has increased. This suggests a cooling labor market, potentially incentivizing the Federal Reserve to adopt a more accommodative monetary policy. Such a shift could reignite interest in small-cap entities, positively affecting the SMCP ETF.

Currently, the top holding in the SMCP ETF is Abercrombie & Fitch Co. (NYSE: ANF), an omnichannel retailer of popular apparel brands, representing 1.48% of the fund. Fabrinet (NYSE: FN), an electronic components company, holds the second spot with a 1.38% weighting. Neogen Corporation (NASDAQ: NEOG), a firm focused on diagnostics and research in the healthcare sector, rounds out the top three with a 1.31% share.

For prospective investors, the SMCP ETF has shown a 20% return since its market debut in 2015. Over the past 52 weeks, the ETF is up around 20% based on closing prices. Since early March, the ETF has been trading within a horizontal consolidation pattern, which might present a strategic entry point for investors.

As of now, SMCP trades at $30.60, just above its 50-day moving average of $30.49 but slightly below its 20 DMA (Displaced Moving Average) of $30.77. An upside resistance line has formed at the $31 level, which could be the next target for the fund to cross. On the downside, a support line is established at the $30 level, a critical threshold that bullish traders need to maintain to prevent triggering automated sell orders.

The recent spike in acquisition volume on June 17 offers optimism for investors, especially those waiting for favorable news that could benefit small caps, such as a dovish monetary policy shift.

While small-cap stocks present higher risks compared to mid or large-cap firms, they also offer significant upside potential. The SMCP ETF, with its diversified and actively managed approach, provides a strategic entry point for investors looking to balance risk and reward. For more information about the AlphaMark Actively Managed Small Cap ETF, visit https://alphamarkadvisors.com/etf/.