After what seemed to be an ephemeral spring rally, stocks were pummeled last week with oil’s skyward climb, the Fed’s bleak outlook and unwelcoming economic data. However, once the credit kinks are worked out and the dust clears, small caps may be the place to park your money, according to Bill Greiner, chief investment officer for UMB Asset Management and UMB Bank, and chief economist for Scout Investment Advisors.

“There are a number of factors that have led me to believe that small-cap equities will probably do well going forward — and those factors center on how bad things are right now,” Greiner said in an interview with SmallCapInvestor.com.

Greiner points to economic indicators for signs of probable future success for small caps. First he examines consumer sentiment. According to the veteran investor, when you analyze the consumer sentiment data, you look at the trend over the last 30-year period. When the read on consumer sentiment has been below a level of 96, the following 12-month period of time small-cap companies have outperformed large cap companies by close to 1,000 basis points, Greiner said. The latest read on the consumer confidence index was below 76.

“When the consumer’s been this negative before, it’s been a great time to buy small-cap companies,” he said.

Next, Greiner looks at economic coincident indicators, a coincident economic indicator is one that moves at the same time the economy does. The latest read for coincident economic indicators overall was 0.56%. 

“The last time we were in this environment was back in the early 2000’s, right before the start of the big rally in stocks in general,” said Greiner. “That leads me to believe that small-cap companies are probably positioned relatively well.” 

According to Greiner, when coincident indicators have been at this stage historically, small-cap stocks on average generated returns of 25.6% for the next 12-month . . .

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