Smaller Companies Will Outperform

You’ve got to like the action of this stock market. The broader market is a little tired, but that’s only because stock prices have been rallying since July. I’m particularly impressed by the monetary situation that’s been engineered by the Federal Reserve and I’m hopeful that we’ll enter 2007 on a positive note.

With this in mind, I still think the stock market is due for a correction. I don’t know what the catalyst will be, but be prepared for it to happen. This year looks like it will close on a solid positive note, but I’m a little concerned about 2007 with the economy and real estate markets slowing.

Of course, there isn’t much we can do about it, so we have to invest and trade around the current set of circumstances.

So far this year, large-cap stocks have been the clear leaders in the market. Stocks such as Caterpillar did great in the first half of the year. The laggards have been in technology, but companies such as Hewlett-Packard have really improved their performance over the last two quarters.

Most of my time is spent looking at micro-, small-, and mid-cap companies and this will remain my focus going into 2007. As I’ve mentioned before, I do think that smaller companies will outperform over the next few years, because large-cap companies will soon feel the effects of a slowing economy.

Smaller, domestic companies are nimble and they can adapt much quicker to changing fundamentals in the marketplace. They also offer more bang for the buck as growth is much more easily generated from small companies.

Like I said, I’m impressed with the resilience of this stock market and as far as I’m concerned, the future looks bright. Just be prepared for a technical correction in the near-future.