Selloff in equities pushed small cap stocks close to fair value – Jefferies

Following a turbulent period of market volatility, small-cap stocks are inching closer to fair value, according to a note from Jefferies analysts on Monday.

Jefferies highlights the impact of the recent selloff on small-cap equities, positioning them in the 54th percentile of their absolute valuation model, close to fair value.

Throughout April, small-cap stocks weathered a rough patch, largely attributed to concerns over rising interest rates and prolonged inflationary pressures.

Despite these challenges, Jefferies observes that the relative performance of small caps has yet to align with historical trends.

Notably, while small caps have experienced a downward adjustment in valuation, the firm’s relative model still sits in the 9th percentile.

Despite the headwinds, Jefferies remains optimistic about the potential for small-cap stocks to rebound, particularly as earnings season unfolds.

Jefferies said the realization of high interest rates and inflation for longer “tends to boost relative performance over time,” although they acknowledged that this has not been the recent narrative.