After a relentless battering of tech stocks, the tides might be turning in favor of small caps.

Andrew Graham, founder and managing partner of Jackson Square Capital, suggests that a shift out of Big Tech and into smaller firms could be more than just a fleeting trend.

For a while now, the market has been awaiting a soft landing scenario where economic stability paves the way for rate cuts, and small caps come into their own.

The Nasdaq, which hit an all-time high on July 10 when markets closed, has since faltered, nudging the Russell 2000 into the spotlight. This small-cap index, despite recent turbulence, shows promise for those looking to capitalize on a broader market rotation.

September Rate Cut Could Boost Small Caps

Graham notes that a potential Federal Reserve rate cut, with futures markets almost certain of a September decrease, could provide the necessary boost for small caps. This expected cut could kick-start a cyclical recovery, benefitting companies that have lagged behind the tech giants.

Yet, the rebound hinges on continued economic growth — something still in flux. July's labor market data raised some eyebrows, but Graham points out that the jobs report wasn't as dire as it appeared, suggesting that a recession might not be imminent.

Where Small Cap Investors Could Find Value?

Investors could find value in small-cap ETFs like the iShares Russell 2000 ETF (NYSE:IWM), says Graham, which offers a broad, diversified approach to small-cap stocks.

For those willing to dig deeper, midcap stocks like Fabrinet (NYSE:FN), which benefits from the growing demand for data center components, could be worth considering according to Graham.

Silicon Laboratories Inc (NASDAQ:SLAB) and Synaptics Inc (NASDAQ:SYNA) are also on Graham's radar for their specialized semiconductors, while Monday.com Ltd (NASDAQ:MNDY) stands out for providing cost-effective alternatives to pricier business tools.

What Copper Prices Tell Us?

Graham warns the copper market's recent slump might signal caution. Historically, rising copper prices have indicated strong cyclical rallies, but the current downturn could temper expectations.

Overall, if policymakers navigate the economic landscape adeptly, reducing inflation without triggering a recession, small and midcap stocks could indeed experience a meaningful resurgence. As the market adjusts, keeping a close watch on these segments might just pay off.