According to Vanguard, a top investor, the recent small-cap rally may still have more upside due to valuation gaps and the economic environment. Greg Davis, president and chief investment officer of Vanguard, told CNBC’s Bob Pisani that the small-cap rally makes sense from a valuation perspective and could continue. “Small-cap stocks still look relatively cheap to us compared to some of the larger-cap stocks that are out there,” Davis said. The small-cap Russell 2000 rose nearly 10% in July, while the S&P 500 was flat and the Nasdaq Composite Index fell 2%. Small-cap value stocks in particular have outperformed, including the Vanguard Russell 2000 Value ETF (VTWV), which rose 11.9%. “We think there’s plenty of upside in small-cap stocks, in addition to value stocks,” Davis added. The bull market has been driven primarily by a handful of big technology stocks, including Nvidia and Microsoft. This has raised concerns on Wall Street that the market is overly reliant on a few stocks that make up a large share of the S&P 500 Index. Davis said that while the market certainly looks top-heavy, it’s not yet at historical levels and investors can look beyond the S&P 500 Index to mitigate risk. “My takeaway for investors is that by looking at the market as a whole, you can diversify more broadly,” he said. Politics and policy will be key market drivers in the second half of 2024, both in small caps and in equities in general. On the political front, Davis said investors should “block out the noise” of the election cycle and focus on their long-term goals. On the policy front, Vanguard expects one Federal Reserve rate cut this year, with more cuts to come in 2025, Davis said. “A lot will depend on whether the trajectory of slower growth and subdued inflation continues going into next year. If so, we’re likely to see more rate cuts next year, which will also benefit the small cap sector,” Davis said. Vanguard is a privately held company with roughly $9 trillion in assets under management. It is best known for its index funds, developed by Vanguard founder Jack Bogle, which have helped drive down the cost of investing over the past 50 years. Earlier this month, BlackRock veteran Salim Ramzi was named CEO of Vanguard.
Vanguard CIO says small caps still look cheap after July’s big rally
Services
© 2026 Business Investopedia. All Rights Reserved.