HUNTING FOR BARGAINS

A market plunge hit small stocks hard. Is it time to buy?

- BY NELLIE S. HUANG

TURBULENT markets are hard to stomach, but they offer bargains that can set up your portfolio for better returns over the long run. In the market’s recent tumble, smalland midsize-company stocks have been among the hardest hit. Is it time to bargain hunt?

On-again, off-again policies from Washington, the onset of global tariff salvos, and flagging consumer and business confidence have fueled recession fears and rocked the stock market. From its peak earlier this year, the large-company S&P 500 index fell 17.5% through April 7 (the date for all returns in this story unless otherwise noted). Shares in small and midsize companies have been hurting more and for far longer. After peaking in November, small-capitalization stocks, as measured by the Russell 2000, slipped 25.5%. That’s bear-market territory, defined as a drop of 20% or more. The Russell Midcap index fell 19.4%. Smalland mid-cap indexes initially bounced higher on news of a delay in the implementation of some of the proposed tariffs, but not quite as high as their large-cap counterparts.

Sustained rebounds in smalland mid-cap stocks have been elusive in recent years. These days, relative to large-company stocks, both midsize and small shares are less expensive than they’ve been in decades. Prices can fall further, of course. But at these levels, “if you’re wrong, you're falling out the first-floor window and cutting your knees. You're not going to get killed,” says Bill Hench, who heads the small-company team at investment firm First Eagle.

Two key stressors for smaller companies—high interest rates and rising inflation—have eased significantly from peak levels, even if progress has stalled recently. And lower corporate tax rates and looser regulations, if those initiatives come to pass, would be a boon to smaller firms.