Analysts at JPMorgan are forecasting a strong period for small- and mid-cap stocks, projecting potential gains of 30–60% relative to large-cap equities over the next three years.
“Small-Caps have been underperforming Large-Caps for a long while, which seems fair as they represent a low quality pool of stocks, but one that could perhaps outperform from here if the market turns risk-on with the help of rate cuts from the Fed, right? WRONG,” JPMorgan said in a note.
The bank argued that the common perception of weak small-caps is outdated. “Small-Caps in DMs have been doing quite OK vs Large-Caps since Nov 2023, with SMid actually outperforming Large all over the world for the last 6 months (since the end of Feb),” the analysts added.
JPMorgan also emphasized that profitability among the segment is stronger than assumed: “>90% of all SMid-Caps in most sectors across most regions are actually profitable businesses.”
While looser monetary policy could further support small- and mid-caps, the analysts noted that rate cuts are “only one of many drivers we see today that should continue to drive such alpha generation.”
Overall, JPMorgan projects that “SMid should outperform Large-Caps by 30–60% in DMs over the next 3 years, which means we are just in the second half of the first inning.” The firm highlighted the combination of profitability and relative value as key factors behind its bullish stance.
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