Traders,

If you thought the 25% discount offered in large caps at the end of Q3 was compelling, you should consider the even larger 33% haircut available in small caps. The Russell 2000 Index ETF is the go-to proxy for the little guys. It peaked late last year at $244.46 and fell below $164, or approximately one-third off the high.

While the media would like you to believe that stocks are likely going much lower, history suggests otherwise. It’s not often you get a discount of this magnitude, and long-term investors should use it to their advantage by shopping the sales rack.

The chart below shows the P/E ratio of large-caps, mid-caps, and small-caps. They are at 15.1, 11.1, and 10.6, respectively. What I find incredibly compelling is that small caps are trading at the lowest P/E ratios since 2008. They’re pricing in Armageddon.

Spoiler alert. It won’t come, and sooner or later, stocks will recover.

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Chart of the Day: Forward P/E Ratios for S&P Indexes

Small caps, get your small caps! They’re in the bargain bin!

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