The National Bureau of Economic Research has stated that US long-term interest rates have surged. This has affected small cap stocks negatively. Initially, small cap stocks were seen as a good investment due to their low valuations and potential for growth. However, their valuations have dropped even further, and the current economic cycle is uncertain. Higher interest rates have also impacted small caps, as many of these companies have thin profit margins and may face increased defaults. Additionally, the rise of private equity may have weakened the small cap market. Despite these challenges, small caps remain cheaper than larger stocks, and there may be opportunities for investors. In regards to the relationship between interest rates and stock market performance, the idea that rising interest rates are always bad for growth stocks is an oversimplification. The impact of rising rates on stock prices depends on various factors, including growth rates and pricing power. The theory that “rates up = growth underperforms” does not hold true in all cases. There is a need for a better understanding of the relationship between interest rates and stock market behavior.
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