But if rates remain at present levels, rather than fall from here, would that not imply bad news for smaller companies?
Rupert Rucker, who manages a US small and mid-cap fund at Schroders, says valuations are currently at such a discounted level relative to large caps that any such concern may already be reflected in the price.
He says that while higher interest rates would be expected to hurt the liquidity of smaller companies, “in the US, small caps are mostly very big companies. Many of the ones we own would be large caps in the UK.”
Rucker says that while technological change is driving the growth of mega-cap businesses, the US government’s “Chips Act” — the stimulus package introduced by President Joe Biden — is the key driver of the growth in the small and mid-cap universe.
He says this is leading to significant fiscal spending in the country, and the primary beneficiaries of this spending are smaller and mid-cap, and domestically focused companies.
Fran Radano, who runs the North American Income trust at Abrdn, says consumer spending is now the primary reason for the strong GDP growth in the US economy, with retail sales rising in December by more than had been expected.
Even if the US economy is diverted from the “goldilocks” outlook of recent months, the potential for rates to have peaked means its equity market may not require another burst of technological innovation to thrive.
David Thorpe is investment editor at FT Adviser
