Rolling recovery favors cyclicals and small caps
The US economy is transitioning from a post-pandemic rolling recession into a rolling recovery, making equal-weight and small-cap cyclicals more attractive than mega-cap growth.
The argument
The guest argued that the multi-year private sector recession bottomed in April 2025 following government job cuts. Because the recovery is occurring piecemeal rather than all at once, he expects a broadening of market participation to resume once near-term geopolitical and oil shocks subside.
The thesis, stress-tested
✓ What validates it
- ✓S&P 600 outperforming the Russell 2000
- ✓Fed cutting interest rates as inflation concerns ease
- ✓Continued positive inflection in median Russell 2000 earnings growth
▸ Risks discussed
- ▸Geopolitical escalation in the Middle East pushing global oil prices above $120/barrel
- ▸AI disruption weighing on software and business services labor
- ▸Private credit market stress impacting levered entities
Hear it yourself
"But, basically, we priced in that recession in April 2025. S and P down 20%, many stocks down thirty, forty, 50%. And we talked about that at the time, and then we had the reflexive move higher."
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