The two-month rally in stocks that began in mid-June undid a significant portion of the valuation decline seen in equities this year. It also has forced investors to search for areas of the market that may be priced more attractively. One place we believe warrants attention is the small/mid-cap market which, despite the economic gloom, can count a multitude of factors as relative tailwinds.
Key takeaways
- The recent rally in stocks presents a challenging starting point, and forces investors to look for areas of the market where the entry point looks attractive on a relative basis.
- Small and mid-cap stocks have underperformed as inflation and recession risks have taken center stage. Relative valuations sit, in some cases, near multi-decade lows.
- Despite the economic gloom, we believe that alongside compelling valuations, a more resilient business investment environment and a strong U.S. dollar each offer tailwinds for SMID relative performance.
