The Investor Insight - October 2024

Regardless of extended valuations, large-cap equities continued their upward trend in the third quarter. The “Magnificent Seven” (the moniker for a group of technology-related megacap stocks) have disproportionately led the rally for the past several years. That seemed to change this quarter: only three of the Mag 7 names beat the Index return (the rest were in negative territory). Mid- to smallcap equities, while bouncing nicely off their recent lows, continued to trail large cap—extending the longest underperformance period in history while sporting significantly lower valuations. In fact, small- and microcap indexes are still where they were more than three years ago, as seen in the two charts below. This is where we see the opportunities, given the lower valuation, historically prolonged period of underperformance, and additional rate cuts to come. Historically, small caps have outperformed during ratecut cycles.