Small Caps Could Dominate When Credit Gets Easier

Here's what's interesting: as credit conditions improve, smaller companies often gain ground on larger peers. Why? They're more sensitive to borrowing costs and economic momentum. When money flows more freely, small-cap equities typically outperform—they've got higher leverage to economic recovery and less defensive characteristics.

The equity market structure matters. During tight credit cycles, investors flee to blue chips and mega-caps for safety. But the moment credit loosens up, capital rotates into more beaten-down, higher-beta names. That's where small caps shine. They're faster movers, hungrier for capital, and benefit disproportionately from falling interest rates and expanding credit spreads.

Worth watching as macro conditions shift. If we see credit stress ease—measured by spreads tightening and lending standards relaxing—expect small-cap outperformance to follow. It's a playbook that's worked across multiple cycles.