Wall Street was off to a volatile start in 2025, following a steep sell-off in the final weeks of 2024. Notably, the small-cap Russell 2000 Index fell 8.4% in December, marking its worst month since September 2022. The index is up 0.4% in the initial week of 2025. Smooth trading is likely to continue given the “January Effect," which refers to a seasonal increase in stock prices during the month.
For investors looking to capitalize on this opportunity, small-cap stocks that are down in double-digits or in high single digits over the past month and have a solid Zacks Rank #1 (Strong Buy) or #2 (Buy) and a Momentum Score of B or more seem solid choices. These include Boundless Bio Inc. BOLD, HomeStreet Inc. HMST, Synchronoss Technologies SNCR, Pitney Bowes PBI and USANA Health Sciences Inc. USNA. You can see the complete list of today’s Zacks #1 Rank stocks here.
January Effect Seems Real This Year
Small-cap stocks tend to outperform large-caps during the month. According to some market experts, the January Effect actually runs from mid-December through February.
This is driven by tax-loss harvesting, where investors sell losing positions in December for tax purposes and reinvest in January. Additionally, year-end bonuses and portfolio rebalancing drive the stock market higher in the first month of the year. Further, the start of a new year often brings renewed optimism among investors, leading to increased buying activity.
On the macro front, the economy is on a solid footing, household net worth is at an all-time high and the labor market is healthy. The latest bouts of data indicate a strong economy. As small-cap companies are more domestically tied, they are poised to outperform when the economy improves. President-elect Trump's policies of deregulation, lower corporate tax rates, restriction on illegal immigration and enactment of new tariffs would further provide more stimulus to the U.S. economy and benefit small-caps the most. This shift will allow small-cap businesses to operate with increased profitability.
As small-cap companies often lack the financial resources of larger firms to manage regulatory compliance, reduced regulations mean lower operational costs. Trump’s proposed tariffs against major U.S. trading partners would boost the greenback. A strong dollar provides an edge to domestic-focused companies as small caps do not have much exposure to the international market. Trump's protectionist stance will benefit domestic producers, as higher import tariffs raise costs for foreign competitors.
Moreover, pint-sized companies have a higher debt burden (mostly at floating rates) and thus lower rates lead to reduced borrowing costs, helping small businesses expand their operations easily and resulting in increased profitability. The Fed has slashed interest rates by 100 bps since September. The escalation in geopolitical tension will also provide a boost to domestically-focused stocks.
Stocks to Buy
We have profiled the abovementioned stocks here:
Boundless Bio is a clinical stage oncology company interrogating extrachromosomal DNA biology to deliver transformative therapies to patients with previously intractable oncogene amplified cancers. It saw a solid earnings estimate revision of 7 cents for this year over the past 30 days. BOLD has a market cap of $58.4 million and declined 15.5% in a month.
Boundless Bio has a Zacks Rank #2 and a solid Momentum Score of A.
HomeStreet is a diversified financial services company. The company is engaged in real estate lending, including mortgage banking activities and retail and business banking operations and serves consumers and businesses in the Pacific Northwest and Hawaii. The stock saw a positive earnings estimate revision of a couple of cents over the past seven days for 2025. HMST has a market cap of $191 million and has plunged 12% in a month.
HomeStreet has a Zacks Rank #2 and a solid Momentum Score of A.
Synchronoss provides essential mobile solutions to service providers and enterprises through proven and scalable software solutions and platforms. The stock has shed 11% in a month and has a market cap of $96.5 million. SNCR saw a positive earnings estimate revision of 13 cents for this year over the past 30 days. It has an estimated earnings growth rate of 99.3%.
Synchronoss has a Zacks Rank #2 and a solid Momentum Score of A.
Pitney Bowes is a global technology company powering billions of transactions — physical and digital - in the connected and borderless world of commerce. With a market cap of $1.3 billion, the stock saw a positive earnings estimate revision of 3 cents for this year over the past 30 days. It has an estimated earnings growth rate of 184.2%.
Pitney Bowes has lost 8.4% in a month. It has a Zacks Rank #1 and a solid Momentum Score of A.
USANA Health develops and manufactures high-quality nutritional, personal care and weight management products. The stock is down 8.3% in a month and has a market cap of $673.2 million. USANA Health saw a solid earnings estimate revision of 35 cents for this year over the past 30 days and has an estimated growth of 26.1%.
USANA Health has a Zacks Rank #1 and a solid Momentum Score of A.
Research Chief Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners UpPitney Bowes Inc. (PBI) : Free Stock Analysis Report
Synchronoss Technologies, Inc. (SNCR) : Free Stock Analysis Report
USANA Health Sciences, Inc. (USNA) : Free Stock Analysis Report
HomeStreet, Inc. (HMST) : Free Stock Analysis Report
Boundless Bio, Inc. (BOLD) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
