emerging
Shifting US Equities
The report anticipates a rotation within the US stock market, with small-cap and value stocks potentially outperforming large-cap and growth stocks.
Timeframe
near-term
Categories
Impact areas
Detailed Analysis
The report suggests that the current economic environment, characterized by falling interest rates and a steepening yield curve, could favor a shift in US equity market leadership. "The same economic backdrop that results in a steepening of the yield curve (rate cuts, resilient growth, and stable inflation) may also provide a tailwind for value-oriented and smaller-cap stocks." Lower interest rates should benefit companies with high debt burdens, while improving growth prospects could boost revenues, particularly for smaller companies. This combination of factors could lead to stronger earnings growth for value and small-cap stocks in 2025.
Context Signals
Historically, value and small-cap stocks have performed well during periods of steepening yield curves.
Improving revenues coupled with lower interest rates and expenses should result in greater earnings growth for value and small-cap companies.
The report's base case of a soft landing supports the potential outperformance of these segments.
Edge
Investors could benefit from strategically allocating towards small-cap and value stocks.
Unexpected economic downturns could negatively impact smaller and more value-oriented companies.
The rotation within the US equity market could create opportunities for active stock picking strategies.
