Small-Cap Stocks, Nasdaq Spearhead Gains; Is The Fed's 'Game Of Governors' Hurting Investors?


Small-Cap Stocks, Nasdaq Spearhead Gains; Is The Fed's 'Game Of Governors' Hurting Investors?


Robert Maltbie, president of Las Vegas-based Singular Research, expressed optimism for small-cap stocks in 2023. One reason: Valuations are more attractive in this area vs. the biggest issues that lead the Nasdaq 100. "With the QQQs getting priced at around 28 times earnings, that's where the vulnerability is," he told IBD. "Small-cap stocks and micro caps also really line up to a new supercycle in commodities."

Maltbie notes that when he spotted the chip-equipment gear maker in IBD's key stock lists, trading around 16 or 17 a share last year, he saw practically zero coverage among the main firms on Wall Street. Shares now trade at 35, up 80% after three moves above the 19.53 buy point of a base within a larger structure. Aehr's products have found a niche within the electric vehicle market.
Maltbie criticizes the manner in which the Fed is using relatively old data to make judgments on how far interest rates should rise. For instance, some of the data the central bank looks at involves surveys of prices on apartment rentals across the country that take place every six months. Maltbie likens that to looking at the health of a stock on its chart by taking into account its 200-day moving average, but not its current price.

"I can virtually guarantee that the monthly CPI will come down the next three or four months. You can get data on rents from other data gatherers. And in the last four months they have been downward," he added. "Savvy fund managers are having their analysts adjust the numbers for both CPI and PCE (personal consumption expenditures) indexes."

Meanwhile, Maltbie thinks a desire among monetary policy hawks within the Fed to talk down the stock market amounts to a virtual "game of governors," alluding to the HBO Max megahit series, "Game of Thrones." Why? The Fed's mission is both to maximize full employment and economic growth while keeping inflation and prices stable. "Are they trying to add to the price stability?" Maltbie asked with a hint of irony.


Future Of The Yield Curve

He believes over time the yield curve will resume its normal shape. That is, the hawkish elements of the Fed will recede. Put another way, at some point we could see the 1-year Treasury note, which closed Wednesday at 4.96%, fall back to 3%. The 10-year bond yield, now at 3.81%, may rise to 4%. Finally, the 20-year bond, yielding 3.97%, could eventually return to 5%.

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