These Stocks Are Screaming Recession. It’s Almost Time to Buy Them.

livemint.com:

However magnificent the “Magnificent Seven" tech titans might be, it is probably time for investors to look past them—way past. Of the 3,000 companies that make up virtually all of America’s stock market, an index representing the most valuable one-third, the Russell 1000, is looking healthy again. Stocks can be a harbinger of economic downturns, but a false alarm after last year’s mild bear market seemed to prove economist Paul Samuelson’s quip that “the stock market has predicted nine out of the last five recessions." Look below the hood, though, and stocks’ message about the economy is more concerning.

The remaining 2,000 companies, members of the Russell 2000 index, are considered small capitalization stocks. While they make up less than one-tenth of the overall market’s value, their size makes them much more sensitive to emerging economic strains. The Russell 2000 index remains in a bear market since peaking in late 2021 and has lagged behind the large capitalization Russell 1000 by a whopping 13 percentage points this year.

The upshot? These stocks have been good at signaling recessions but are also those that investors have been best off owning after one has materialized. Over the past 11 recessions, a small-cap stock index maintained by MSCI has beaten large-caps in the 12 months after a recession was declared every time, leading them by 16.51 percentage points on average. Picking the exact turning point small-caps get their mojo back is a fool’s errand.