What Do An Aging Cycle And Rising Rates Mean For Small-Caps?
article , video 12-04-2018

What Do An Aging Cycle And Rising Rates Mean For Small-Caps?

Co-CIO Francis Gannon discusses rate hikes and where we are in the current cycle.

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What’s your perspective on where we are in the cycle?

Our view of the economic cycle is really based on the bottoms-up information we’re hearing from many of the industries and companies that we meet with on a daily basis. I would tell you, you can argue from some companies’ standpoint that we’re closer to the end of the cycle, and some that we’re more mid-cycle. One of the things that is true about this economic cycle is, it has been quite long, and we have broken out of this anemic economic growth period of 2% growth that we had for a period of time, and now we’re ratcheting in terms of economic growth going forward. So I think you can argue that we’re at the middle to the end of an economic period, but I can tell you from our perspective, there is no financial crisis or large recession on the horizon at the moment.

Do you think further rate hikes could hurt small-caps?

Historically, when you see the Fed raise rates and rates start to move up, it's actually been a good thing for small-cap companies. When you go back in time and take a look at these rising rate periods, you find that small-caps have actually done quite well in the initial phases of the Fed raising rates. We’re eight tightenings in at the moment. I still think the Fed is, for all intents and purposes still neutral to easy money. I don't think the Fed is tight by any stretch of the imagination. I think what the Fed is doing is actually reflective of a very healthy economy. You are seeing GDP growth north of 4% in the most recent quarter; you're seeing inflation that is healthy. So to me, it's reflective of a healthy economy.

More Small-Cap Perspectives

 

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the persons speaking as of October 15, 2018 and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.

The performance data and trends outlined in this presentation are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.)

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