Pro favours small cap stocks after private payrolls data today

U.S. stocks opened in the green this morning after Automatic Data Processing said job creation in the private sector eased further in November.

Private payrolls increased less than expected in November

Private employers hired a total of 103,000 workers last month versus 128,000 that economists had forecast. On Wednesday, ADP also downwardly revised its reading for the prior month to 106,000.

Annual pay was reported up 5.6% today – the smallest gain on record since September of 2021. On CNBC’s “Worldwide Exchange”, Greg Tuorto of Goldman Sachs Asset Management said:

The Russell 2000 index is down about 7.0% versus its year-to-date high at writing.

Small caps tend to do well when rates start to decline

Wage increase for those who switched jobs stood at 8.3%, as per the ADP data on Wednesday.  

Tuorto is convinced that small caps will do particularly good once interest rates start to decline. But they’re adequately well-positioned even if the higher for longer narrative plays out, he added.

Sectors within small caps he likes include tech, consumer, and healthcare – all of which typically respond distinctly positively to lower rates.  

It is worth mentioning here, though, that Fed chair Jerome Powell last week said it was “premature” to expect aggressive rate cuts in 2024 considering inflation still stands well above his 2.0% target (find out more).