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Wednesday’s rise of nearly 2% for the Russell 2000 could be a preview of a big year ahead for small cap stocks, according to Tom Lee. The Fundstrat head of global research told CNBC’s ” Last Call ” on Wednesday night that the environment on Wall Street is shaping up to be a positive one for small cap stocks to rip higher. “With the Fed doing a dovish pause, and CEOs getting more confident — that means M & A and IPOs — and people looking at other sectors, I do think the Russell can rise 50% this year,” Lee said. That dramatic rise would push the Russell 2000 , which closed at 2,074.88 on Wednesday, to about 3,000. .RUT 1Y mountain The Russell 2000 has underperformed the S & P 500 over the past year, even with Wednesday’s rally. Small cap stocks have long been underperforming their larger counterparts in the U.S. market. That has been especially true in the last rally, with large cap tech leading the market higher. Over the past 12 months, the Russell 2000 is up just 16.7% compared to 30.5% for the S & P 500 . But that long-term underperformance could mean that it is time for a reversal. Lee said that the valuation for small cap stocks is back to where it was on a relative basis in 1999, before an extended period of outperformance for the group. Lee said some of the reasons he is optimistic about small cap stocks include a potential rise in mergers and acquisitions, recent momentum for biotech and the large weight that regional banks — which should benefit as rates fall — hold in the small cap index. “I think the Russell 2000 represents sort of the best of things to happen when the Fed starts cutting,” Lee said.
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