(IWM)

IWM is gaining momentum as rate-cut hopes, attractive valuations and rising small-business optimism fuel renewed interest in small-cap ETFs.

IWM could get a lift from easing inflation, possible Fed rate cuts, rising small-business optimism, and decent earnings forecasts.

Key Points in This Article: Small-cap stocks, via the Russell 2000, have underperformed the S&P 500 by about 5% annually over the past decade.

PSCI, PSCT, XSVM, XSHQ and FYT led small-cap ETF gains after softer inflation data boosted rate cut hopes.

The current market environment, characterized by easing inflation fears and a potential shift in Federal Reserve policy toward lower interest rates, is a favorable backdrop for small cap stocks.

With rate cut odds climbing, ETFs like VNQ, XLU, XLY, IWM and GLD look likely to gain from a Fed move.

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