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A Pro's Case For Buying Small Caps, Financial Stocks During Sell-Off

Jayson Derrick

Small-cap stocks are not immune to the broader market sell-off, and the group was down 11 percent from its high and in correction territory as of Thursday, according to TradeWise Director Tom White. TradeWise is an options-based trade advisory firm and affiliate of TD Ameritrade. 

What Happened

At a time of global trade tensions and concerns over tariffs, investors should take a look at domestic small-cap companies, most of which derive 85 percent of their revenue domestically, White told CNBC Thursday The lack of notable international exposure compared to large-cap stocks removes many of the concerns plaguing the overall market.

Financial stocks are down even more than small caps and may offer the better opportunity for investors, White said. Shares of large investment banks like Goldman Sachs Group Inc (NYSE: GS) and Morgan Stanley (NYSE: MS) are down more than 15 percent since the start of 2018, he said.

What's Next

The rising yields could help the investment bank firms report a "surprise beat" in their upcoming quarterly results, White said. Over the near-term, financial firms look more favorable as rising rates negatively impact other sectors — especially manufacturing, which could see higher input costs, he said. 

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