Small-cap stocks may benefit from the upcoming Fed rate cut cycle

The Fed is expected to start cutting rates this week and may continue to do so in the remaining meetings of 2024, or even until 2025. This is undoubtedly good news for small-cap stocks. Although small-cap stocks have underperformed large-cap stocks recently, this situation is expected to change soon. In fact, when interest rates rise and remain high, small-cap stocks tend to be the most hurt because they usually have higher debt levels and rely more on bank financing. In addition, their business tends to be more concentrated in the domestic market (especially the United States), so when inflation is high and interest rates rise, they are hit harder by falling consumer spending.

So, how to invest in small-cap stocks and seize the opportunities brought by this mid- to long-term trend shift? Should I buy individual stocks or ETFs when investing in small-cap stocks?

To seize the opportunity of the interest rate cut trend, investors can choose individual stocks or ETFs. Choosing individual stocks will of course be more risky, but if you can successfully find excellent stocks, you may achieve rich returns. However, for this method, investors need to study the small-cap stock market in depth, especially this market is full of challenges.