Sure thing, here’s a reimagined version of the article:
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Are the little guys in stocks finally getting their shot? You know, the small-cap ones? Maybe. It’s like this… for ages, the big shots, measured by the S&P 500, have been doing all the heavy lifting in the market rallies. And here’s the crazy part — these giant tech guys, the so-called “Magnificent Seven” (seriously, who comes up with these names?), they’ve been the front-runners.
So, because the S&P 500 is weighted, if you’re huge, you’re more impactful. And all these seven tech giants? They’re among the top dogs worldwide.
But, man, their recent charge — 230% up since October 2022? Whoa! — also made them pricey as heck. The forward P/E ratio for these seven is sky-high at 28.6, way beyond the S&P 500’s 22.2, and nearly double the small caps in the S&P SmallCap 600 Index at a mere 15.6.
And now, the roadblocks holding back small caps? They’re starting to crumble. It’s like suddenly there’s a whole new playground for these smaller players.
### Rate Cuts on the Horizon
Tiny companies? They’ve been between a rock and a hard place with these climbing borrowing costs since the Fed started hiking the rates in early ’22. Inflation was getting scary, so up went the rates. These smaller companies, often low on profits, rely big time on credit. And yep, that hasn’t been cheap lately.
But hey, there’s a light at the end of the tunnel (fingers crossed). It looks like the Fed might cut some rates later this year. Futures traders are like, “Yup, we’re seeing at least two rate cuts, maybe even three, by year’s end.”
Historically speaking, small caps do well when rates drop. Since way back in ’54, small caps have jumped on average 14.2% after the first Fed cut, while the big fish gained 9.4%. A year in, and small caps were nearly 27% up, with large caps trailing at about 16%. That’s an 11-point lead! Not too shabby, huh?
### Taxes—Down They Go
There’s this massive bill — amusingly dubbed the “One Big Beautiful Bill Act” — that keeps the corporate tax cuts from Trump’s first term in play. More winning for small businesses! They typically get trapped with steeper tax rates than the big guns, largely because they earn more from domestic revenues.
### And then there are Tariffs
Here’s another angle: tariffs. They’re tougher on big firms, what with them being more about exports. Smaller ones? More into domestic stuff, not as exposed. The Trump folks are renegotiating the tariffs — yay — but still, they’re going to be higher. Small firms are dancing in advantage territory here.
Put it all together: higher tariffs, slashed taxes, lower borrowing costs, and what do you get? A sunny forecast for small businesses and their shares.
We’ve seen it already with our Oxford Club portfolios. The rise of small-cap stocks is real — if you know where to look, that is.
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I hope this version meets your needs!
