Why are higher interest rates bad news for small caps? Higher interest rates are typically bad news for small-cap stocks. They weaken the growth prospects and investor demand that small companies rely on. This is how it works: Borrowing Costs Rise — And Small Caps Depend More on Debt Small companies often rely heavily on short-term loans or revolving credit to fund: working capital expansion inventory payroll equipment purchases When interest rates rise, the cost of servicing this debt increases …

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The recent rally in small-cap stocks can be attributed to several key factors, many of which align with the broader macroeconomic and market trends we’ve been observing over the past few months. Here are some possible reasons for the recent small-cap rally: 1.Economic Recovery/Expansion: Growth Potential: Small-cap stocks typically represent younger, smaller companies with greater growth potential. When the economy is expanding or recovering, these companies tend to outperform their larger counterparts due to their ability to scale faster. Increased …

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We previously wrote about why large caps have outperformed small cap but in this article we discuss the environments where small-cap stocks can outperform large-cap stocks. Early Stages of Economic Recovery Small-cap stocks are often more sensitive to economic cycles and can benefit significantly when the economy starts to recover from a downturn. During this phase: Small-cap companies may experience faster revenue growth as economic activity picks up. They can quickly adapt to changing market conditions and capitalize on new …

Read MoreWhen do small caps outperform large caps?

Small caps tend to be growth companies which have potential to yield a better capital return than bigger companies. However, there are additional risks associated with these investments. In this article we discuss the pros and cons, who is suitable, and when the best time is to buy small caps. Characteristics: Small cap stocks are usually companies that are younger. They are generally looking to grow their businesses at an accelerated rate.  Small cap companies have a market cap between …

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