"With the Fed kicking off a new rate-cutting cycle, it's easy to get overly bullish on the small- and mid-caps as well as some of the more speculative high-tech companies that offer less in the way of profits today for ambitious growth promises in the future. In any case, I do think that the small-cap universe is worth another look, especially for investors seeking growth at a reasonable price of admission."
"Lower rates are a big deal for just about every company that has a good amount of debt sitting on its balance sheet and a lofty amount of capital expenditures. For the small caps, it's an even bigger deal, especially when you consider many need to rely on capital raises to fund their ambitious growth prospects. Indeed, it's hard to tell how low rates will go in this new rate-cutting cycle. The Fed will need to stay in tune with the data and act accordingly."
Federal rate cuts improve financing conditions and increase the appeal of small- and mid-cap stocks and speculative high-tech names for growth-seeking investors. Large-cap stocks have become relatively expensive amid an AI-led rally, creating room for smaller companies to catch up. Accessing small caps via ETFs can provide diversified exposure while reducing individual-stock risk. Lower interest rates particularly benefit firms with high debt loads and heavy capital expenditures and make capital raises easier for growth plans. Employment and inflation dynamics will shape the depth and timing of rate cuts. Analysts expect potential small-cap strength to persist into 2026.
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