By coinnews 
00:00 Speaker A
When you’re looking at opportunities in the stock market right now, where do you want to be positioned, Michael? What are you screening for?
00:14 Michael
Well, we’re looking for some of the things that have been hit hard most over the the course of this year so far and really our eyes are pretty firmly focused right now on small caps where they actually came into the year with we would call fair valuations, but actually now sit at decent discount valuations. And we do think that they could be relative beneficiaries if we are pulling back from the brink on trade here. We think earnings could have the ability to outpace large cap earnings in 2025 and perhaps even beyond then. So it’s sort of picking through the opportunities I think further down the capitalization spectrum is probably where investors are going to get the best bang for their buck right now.
01:04 Speaker A
Michael, I too, Adam Johnson here. I too am long small caps. I call it my any day now trade because they just can’t seem to get going. Uh, do we need rate cuts for small caps to suddenly come back to life so that those forward discount rates go down and you can afford to actually pay more for the stocks now?
01:40 Michael
It certainly wouldn’t hurt. If we start to see rate cuts come through, that could really put a bid underneath small caps. We look at the composition of debt underneath a lot of the the small cap indexes in general and quite a bit more floating rate debt on those balance sheets. So if the Fed starts to take rates lower, you could actually see direct benefits on the profitability of these companies. Uh, if we start to see those rate cuts come through at the the call it the back half of this year, our base case is about two or three that we’ll get. That could really be something that sort of just boosts the opportunity we see there. I definitely want to get it.
02:44 Speaker A
Michael, speaking of, what about the Fed’s recent decision here? Stand pat is kind of a wait and see approach. Is that the right one, Michael?
03:04 Michael
We feel like it is. We’re looking at the same data they are where the labor market looks fine, inflation actually moving in the right direction when we look at on a three-month annualized basis. I think if we weren’t dealing with tariffs, the Fed would be really happy with where things sit. But of course, we do know that these tariffs are out there still and they still do represent a relatively inflationary force that we just still don’t know the full information about how it’s going to proliferate through the economy. Taking a wait and see approach, I think the Fed has the luxury to do that because the economy has held up so well going into this. And again, our base case is probably back half of this year, you start to see the Fed pull the trigger on a few more rate cuts. Two to three is our base case, but if you start to see inflation getting sticky, it’s probably fewer rate cuts. If you start to see the economy take a little bit of more of a hit than people are expecting, expect more rate cuts. So there’s actually pretty wide band of expectations, but middle of the road, two to three rate cuts.