Federal Reserve chairman Jerome Powell recently warned that interest rates could continue to rise , despite what markets had predicted . This spells bad news for US small caps , which are more volatile so will suffer disproportionately if monetary tightening is used to suppress economic growth . This is the theory , anyway , but Robert Kaynor of
Schroder US Smaller Companies noted US small caps outperformed their larger counterparts for extended periods in the difficult conditions of the 1970s and early 2000s . The manager said that could be the case again in the coming years .
He claimed there is a strong longterm bull argument for investing in US small caps , such as the wealthy domestic consumer and a traditionally business-friendly government . Another potential tailwind is the trend for onshoring . However , Kaynor said the main reason for his optimism on small caps is valuations , which are already pricing in a lot of bad news . “ The small-cap universe is not dominated by secular growth companies like the large-cap S & P 500 is ,” he explained . “ This means there is very little valuation premium that needs to unwind . “ Smaller companies have not been so cheap relative to large caps since
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