"Undoubtedly, the small- and mid-cap names certainly stand to benefit from further interest rate reductions. With talks of who will be the new Federal Reserve chair and how much more dovish they could be compared to Jerome Powell, perhaps we could get more rate cuts than expected this year. Either way, I think the rate outlook bodes quite well for the small caps, as their debt burdens become lighter while larger firms obtain greater purchasing power, perhaps enough to increase the rate of acquisitions."
"While the case for rotating into the small caps seems the strongest it's been in a number of years, questions linger as to whether such a move is worth doing, especially as the Mag Seven look to regain their footing. Bigger firms have proven better for such a long time now, after all. Though I think the small caps could do well, perhaps due to the relative undervaluation, I'm just not sure if they can break their streak of trailing the S&P 500 gains."
Small-cap U.S. stocks have been overlooked as seven mega-cap tech companies drove market gains. The Magnificent Seven have recently stalled, prompting attention toward the S&P 493 and stocks outside the S&P 500. Lower interest rates and a potentially more dovish Federal Reserve chair could reduce debt burdens for small- and mid-cap firms and increase acquisition activity by larger companies. Relative undervaluation gives small caps upside potential, but uncertainty remains whether they can outperform the S&P 500 after a long period of trailing returns. Many investors still find broad large-cap exposure via SPY attractive given recent trends.
Read at 24/7 Wall St.
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