Many believe smaller companies could struggle if the Federal Reserve begins hiking interest rates. However, small-cap stocks and category-related exchange traded funds may outperform ahead.
Small-cap skeptics point to a number of factors that may weigh on the asset category. For instance, some point out that small companies rely on bank loans for financing, including those with adjustable-rates, which would cost more to service as rates rise, reports John Waggoner for InvestmentNews.
Additionally, naysayers may argue that investors may treat small-cap growth companies like a bond with no maturity, making the low-dividend-paying category less appealing as rates rise.
However, the equities market has been aware of an impending Federal Reserve rate hike and more or less priced the action in. Furthermore, Sam Stovall, U.S. equity strategist for S&P Global Market Intelligence, pointed out that small-cap stocks have held up better than large-caps in the wake of Fed Chairwoman Janet Yellen’s speech.[related_stories]