: Lower rates reduce financing pressure on small businesses, directly boosting their bottom line. 3. Valuation Gaps
: Historically, small-caps have outperformed large-caps in the months following a Federal Reserve interest rate cut . when to buy small cap funds
When large-caps have dominated for a long period—as they have for over a decade—the can widen significantly. : Lower rates reduce financing pressure on small
Small-cap companies typically carry more debt relative to their earnings than large firms. Because of this, their performance is highly sensitive to the cost of borrowing: When large-caps have dominated for a long period—as
Buying when small-caps are trading at a deep discount (on a price-to-earnings or price-to-book basis) compared to large-caps can offer a "margin of safety" for long-term gains. 4. The 7-Year Commitment
As the economy stabilizes and demand improves, smaller, more agile firms can see revenue and profit grow more sharply than their massive counterparts.
Improving like rising GDP and falling unemployment often signal it is time for small-caps to outperform. 2. The Interest Rate Signal