History shows that small-cap stocks are much more closely tied to domestic business cycles than large-cap stocks. As a result, recessions often provide exceptional buying opportunities for these stocks once the cathartic final “dip” that often accompanies the onset of a recession has broken off.
The fact that the current economy has not yet entered a recession suggests that investors may be wondering whether the economy continues to expand, limiting the potential for expected future rate cuts, or whether rising interest rates will eventually lead to “something.'' They are wary that this could lead to the collapse of small and medium-sized economies, which are more unstable. A cap stock is also included. Adding to these predicaments, in addition to the overwhelming dominance and market power of many large-cap stocks today, the introduction of private equity as a major player in the small-cap space has already disrupted the market for these stocks. may be under pressure. . So it's not hard to see why investors shy away from small-cap stocks.
Nevertheless, while neither the business cycle nor the expected interest rate environment currently appears to favor small-cap rotation, there is a similar trend between the beginning of the small-cap cycle in 1998-2006 and now. There are similarities. Today, it's at least likely that interest rates have already peaked, while valuations are even more attractive across almost every available metric. This means that many of the concerns investors have had about small-cap stocks are already priced in, offering wider margins of safety and interesting opportunities for investors conscious of wider valuations in the higher quality parts of this market. This would suggest that it is useful for providing