There’s roughly 10 months left in 2025. That’s ample time for small-caps stocks and related ETFs to potentially deliver on long-awaited outperformance of large-caps counterparts.
That scenario hasn’t materialized as of yet. But one thing is clear: ETFs like the Invesco NASDAQ Future Gen 200 ETF (QQQS ) could garner support in the form of impressive earnings per share growth and inviting valuations. Additionally, due to the domestic focus of many smaller companies, including an array of QQQS components, the asset class may be able to survive tariff tumult.
“The tariffs would increase the cost of importing hundreds of billions of dollars worth of goods, hurting profit margins at companies that can’t lift prices enough to offset that expense,” reported Jacob Sonenshine for Barron’s.
Small-Caps Have Reasonable Cost of Entry
In bygone eras of investing, also known as the times when small-caps frequently outperformed large-caps, smaller stocks often commanded premiums. That was simply the price of admission for accessing higher rates of earnings growth.
The EPS potency is in place, though it could be pinched by a recession. But valuations remain undemanding. QQQS taps into that theme, as nearly 44% of its holdings are classified as value stocks. Another factor that could signal near-term gains for QQQS is the technical condition of the S&P SmallCap 600 Index.
“The resulting pullback has brought small-cap stocks back to attractive levels. Since April, every time the S&P 600 has fallen to roughly 1300, not far from the current level of near 1360, buyers have come into prop it up,” reported Barron’s. “Over that time, the average return for the three months following a close below 1360 has been a gain of 7.9%. according to Dow Jones Market Data.”
That’s relevant because QQQS and that index share 42 holdings, and 22% of the ETF’s roster also resides in the small-cap gauge. Add to that, tariffs are unlikely to loom large when it comes to small-cap earnings reports over the course of 2025. In fact, if it’s EPS growth that investors seeks, smaller stocks and ETFs such as QQQS could be the places to be.
“Analysts expect aggregate S&P 600 sales to rise this year and next, lifting profit margins and boosting earnings even faster than sales. Profits are expected to increase faster than for the S&P 500 as growth in Big Tech profits slows after the first couple of years of surging demand for artificial intelligence and related infrastructure,” added Barron’s
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