As the Fed is expected to cut rates several more times in the coming months, smaller companies should benefit. At the same time, they remain highly dependent on continued economic growth. If the economy slips into recession, investors are more likely to retreat to larger, more stable firms.
After years of underperformance, small caps now appear particularly attractive on a valuation basis. The gap between small- and large-cap valuations is the widest it has been in decades by some measures.
This post originally appeared at Zacks.