Can Small Cap Stocks Weather the Storm?
Data suggest that challenging economic times shouldn’t deter you from investing in small cap stocks.
With recession concerns intensifying in the wake of the COVID-19 pandemic, investors may be wondering whether small cap stocks are poised to struggle. Are small companies more vulnerable now than they have been during other periods of economic distress? And what are the implications for the size premium?
Even if the economy has entered a recession, it does not necessarily follow that small cap stocks should underperform. Why? Current market prices already reflect expectations about future cash flows, including any impact of an economic downturn. So even if the effects of a recession are more heavily borne by smaller companies, small cap stocks can still deliver higher expected returns...