Small cap stocks are still cheap, this investor says

Nationwide’s chief market strategist Mark Hackett told CNBC’s Worldwide Exchange on Dec. 3 that survey data may look weak, but the underlying economy remains solid, creating a supportive backdrop for dip-buying and improving prospects for cyclicals and small caps.

Hackett said the ongoing divide between “soft” indicators, such as consumer sentiment and PMI surveys, and “hard” spending data has persisted since early 2025.

“There’s been a sharp disconnect between what people have been saying and what people have been doing,” he noted, adding that personal income, spending and PCE remain more reliable gauges of economic direction.

He described the recent government shutdown as producing an “echo” of the slowdown seen in April, when tariff uncertainty briefly paused hiring and survey activity. With official payroll data still catching up, he said the ADP report carries greater weight in the near term.

Despite market volatility, Hackett argued that investors have consistently bought pullbacks throughout the past several years, and that current fundamentals justify the behaviour.

“Technical indicators have rebounded, GDP is running roughly 3%–4%, and earnings growth is in the mid-teens,” he said.

While valuations remain stretched in mega-cap tech, he stressed that “the average company, the average small cap, the average value stock is actually quite reasonable today,” particularly as earnings growth broadens beyond the largest names in 2026.

Hackett identified cyclicals and small caps as his preferred segments, noting that both have lagged despite improving fundamentals. For the S&P 600 small-cap index, he pointed to expected high-teens earnings growth next year alongside valuations “well below average.”

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