Equity gains and small cap potential
In this week’s video insight, I discuss the promising potential for market rallies into 2026, driven by a combination of disinflation and positive economic growth. Highlighting observations and historical trends, I delve into why innovative growth companies, particularly those in the small-cap sector, are poised for significant gains after a period focused mainly on mega-cap technology stocks.
Transcript:
Hi, I’m Roger Montgomery from Montgomery Investment Management and welcome to this week’s video insight. I said last week that I wanted to talk to you about why I think markets might rally into 2026.
For a long time, since the 1970s, in fact, gavekal research has observed that when you get a combination of disinflation along with positive economic growth, the stage is set for good returns in equities, particularly companies that are innovative, have pricing power and growth ahead of them. Now, I thought that last year, in 2023, we’d see that. Well, we did, but in a very narrow group of stocks, the mega cap technology companies of the U.S. But there are a lot of innovative growth stocks with pricing power in small caps, and because they didn’t rally last year, I believe the stage is set for them to catch up.
Now, here’s the thing. It takes a while to go from a market where everybody thinks there will be a recession to a market that believes nothing bad could ever happen. That usually takes quite a few years. Which is why I think we’ll rally up till at least 2026. Remember last year when the mega caps rallied? It was because everybody thought there would be a recession. The bets were concentrated in those companies that were big and safe. Nobody wanted to take risks in smaller cap companies and riskier investments. I think we’ll find now that either lower-quality or smaller, high-quality companies will start to catch up. As the appetite for risk increases and as each of those riskier sectors starts to rally and be priced for optimism and good times ahead, investors will start looking to even riskier asset classes. By the end of all this, we may even see another bubble in cryptocurrencies. That whole process will take a few years, and I’ll add the evidence that it’s happening on our blog as well.
But for now, just keep in mind that we’ve got the view that the stage is set for good returns from equities, particularly innovative growth companies with pricing power. You can find a lot of them in small caps for the next couple of years.
I look forward to talking to you again next week, and in the meantime, continue to follow us on Facebook and X.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
