LIVE MARKETS-Is a pivotal moment for small caps near?

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

IS A PIVOTAL MOMENT FOR SMALL CAPS NEAR?

U.S. small and large company fortunes typically move in tandem. That is, both generally experience good and bad times in line with the overall economic cycle.

However, retired strategist Jim Paulsen is noting that for whatever reason, small and large companies' economic circumstances have dramatically diverged since 2022.

Paulsen, an economist and seasoned Wall Street watcher who most recently worked as chief investment strategist at The Leuthold Group, says large U.S. companies sailed through any 2022 slowdown and have remained in an uninterrupted expansion since the 2020 recession.

Conversely, he says many U.S. small companies seemingly entered a recession in 2022 and still to this day have not yet recovered.

"This certainly helps explain why large company stocks have dominated leadership and why broader-based stock market indexes comprised by smaller companies have chronically trailed. The question is why did the U.S. economy take on a split personality in 2022 – an ongoing expansion for large companies with a simultaneous recession among small companies?", writes Paulsen in a note out on Monday.

As Paulsen sees it, as a result of Fed tightening and persistently high rates, the economy developed a split personality with some smaller companies in a recession while other large companies were prospering, especially Goliaths growing primarily internally with product innovations, such as AI.

"Everyone is tired of hearing that 'small caps' are about to outperform. I am too! Nonetheless, something big may finally happen and it will likely be a game changer," writes Paulsen.

With the Fed potentially edging ever closer to finally adopting an accommodative monetary policy, Paulsen thinks this could be pivotal for much of the broader marketplace.

In Paulsen's view, a Fed rate cut would likely lead to lower long-term yields, a steepening of the yield curve, faster money supply growth, more dollar weakness, and perhaps a broad-based jump in economic confidence.

"I know, I know, its been said too many times. But a Fed ease could end the schizophrenic U.S. economy, reconnect large and small company performances, and finally make small cap and other broader market plays winners."

(Terence Gabriel)

EARLIER ON LIVE MARKETS:

WALL STREET FLAT TO SLIGHTLY UP AMID US CHIP STOCK CAUTION CLICK HERE

BENCHMARK TREASURY YIELD COILING AHEAD OF CPI CLICK HERE

"STAY NIMBLE": CPI COULD SPARK STOCKS ROTATION CLICK HERE

EUROPEAN STOCKS: LONG-TERM BULLS, SHORT-TERM CAUTION CLICK HERE

STOXX 600 FLAT, DEFENCE NAMES FALTER AS MARKETS EYE TRUMP-PUTIN TALKS CLICK HERE

EUROPE BEFORE THE BELL: FUTURES INCH HIGHER AS TRADERS EYE UKRAINE DEVELOPMENTS CLICK HERE

NIKKEI LOOKS TO REJOIN THE ALL-TIME HIGH CLUB CLICK HERE