The Federal Reserve has finally started its easing cycle, and while investors are delighted, what they are most concerned about is undoubtedly which stocks will benefit the most in the future?
Surprisingly, according to a survey, most strategists believe that the most beneficial are not the most popular large and small cap stocks, but the often forgotten mid cap stocks.
Ryan Detrick, Chief Market Strategist at Carson Group, said, "History tells me that it's only when the Federal Reserve starts lowering interest rates that mid cap stocks truly begin to outperform the market." He expects mid cap stocks to rise 20% in the next 12 months, significantly better than large cap stocks.
A recent analysis by Goldman Sachs also found that in the year following the first interest rate cut, the gains of mid cap stocks have historically been stronger than those of large cap and small cap stocks.
Since 1984, the S&P 400 mid cap index has typically performed better than the S&P 500 index and Russell 2000 index in the three and twelve months following the Federal Reserve's first interest rate cut The report states that.
Goldman Sachs analyst Jenny Ma wrote in a report to clients earlier this month: "The beginning of the Federal Reserve's interest rate cut cycle is a potential source of increased stock market demand and improved investor risk sentiment. In the short term, the performance of mid cap stocks relative to other stocks will depend on the strength of economic growth data and the pace of the Federal Reserve's monetary easing cycle
The team sees low valuations and stable economic growth as catalysts for future corporate profits, and expects a return rate of 13% for the S&P 400 mid cap index over the next 12 months.
Jill Carey Hall, a quantitative strategist at Bank of America, also stated that mid cap companies are the "best hedging tool" in the short term.
The recent performance guidance and correction trend of mid cap stocks are good, with an average performance better than small cap stocks during economic downturns... Given the sensitivity of interest rates/refinancing risks of small cap stocks, mid cap stocks can hedge against the risk of the Federal Reserve's interest rate cuts being smaller than expected, "he believes.
Why not small cap stocks?
The risk of a slowdown in the Federal Reserve's interest rate cut cycle, as well as ongoing concerns about economic recession, are key factors driving investors' recent shift from favoring small cap stocks to favoring mid cap stocks, as small cap stocks often have weaker balance sheets and poorer profitability.
Brian Jacobsen, Chief Economist of Annex Wealth Management, stated that small cap trading may become challenging before it becomes more attractive, and investors' concerns about slowing economic growth may outweigh the benefits of reduced borrowing costs.
Citigroup analyst Stuart Kaiser is also cautious about small cap stocks, stating that investors should approach these types of stocks with "great caution".
Even if there is a soft landing, our view is that you will still get a batch of data that looks worse, and when the data looks worse, the market will have a hard landing, just like the situation in early August. At this time, small companies will become the center of attention, "he said.