Tue Sep 10 13:22:51 UTC 2024: ## Small-Cap Stocks Set for a Powerful Rally, Predicts Lazard Head

**Chicago, IL** – Small-cap stocks are poised for a significant rebound in the next year, according to Sean Gallagher, global head of Lazard’s small-cap equity platform. Gallagher predicts a 30-50% rally for small caps, as tracked by the iShares Russell 2000 ETF (IWM), driven by an expected shift in Federal Reserve policy towards rate cuts.

This optimistic outlook stems from a striking valuation gap between small and large caps, with small caps trading at significantly lower price-to-earnings ratios. This gap has been exacerbated by small caps lagging behind large caps in recent years, with the Russell 2000 underperforming the S&P 500 by almost 50% over the past five years.

Gallagher believes that rate cuts will provide the catalyst for small caps to catch up. Lazard anticipates up to 200 basis points of rate cuts over the next year, which would significantly benefit small caps due to their higher leverage and sensitivity to borrowing costs.

The firm is particularly bullish on sectors like financials, healthcare, and consumer durables, which stand to benefit from a lower interest rate environment. Gallagher anticipates increased investment in healthcare, especially biotech, while consumer durables companies with debt-heavy balance sheets are expected to see a strong rebound as borrowing costs decline.

Gallagher also acknowledges potential political implications, noting that historically, small caps have performed better under Republican administrations. While the 2024 presidential election outcome remains uncertain, a Republican-led White House could provide a tailwind for small caps due to potential tax cuts and reduced regulation.

Despite his bullish outlook, Gallagher warns of potential risks, including the possibility of the Federal Reserve falling behind in addressing economic softening. He emphasizes the importance of swift action from the Fed to avoid significant economic contraction.

Investors interested in exploring the small-cap space can attend the upcoming Benzinga SmallCAP Conference on October 9-10, 2024, at the Chicago Marriott Downtown Magnificent Mile. The event offers access to CEO presentations, investor meetings, and insights from leading financial experts.

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