The Federal Reserve's interest rate cut cycle has started! The trend of "big turning small" in the market is becoming more and more obvious, and small-cap stocks are gaining momentum.

" On Wednesday in Eastern Time, for the first time since 2020, the Federal Reserve unexpectedly announced a rate cut, causing small-cap stocks in the US to surge to their highest levels in over a month. The small-cap benchmark Russell 2000 index briefly rose by 2.4% to 2259.70 points, although the increase narrowed to just 0.2% later on. This performance was notably stronger than the collective decline of the three major US stock indices - the Dow Jones Industrial Average, the Nasdaq Composite Index, and the S&P 500 Index, which all closed in the red on Wednesday. The Russell 2000 index briefly reached its highest level since August 1 during the US trading session and is expected to continue to benefit from the rate cut cycle. Typically, during a rate cut cycle initiated by the Federal Reserve, small-cap stocks tend to outperform large-cap stocks in the short to medium term. This is because small businesses, due to their smaller balance sheet size and limited operating scale, are more sensitive to changes in interest rates compared to larger companies. The large-cap benchmark S&P 500 index hit a historical high of 5689.75 points earlier in the day but narrowed its gains after Fed Chair Jerome Powell's speech, ultimately closing with a decline of about 0.3%. "We feel good about the start we've made, and it should be a sign of our confidence in our policies," said Federal Reserve Chair Jerome Powell at a press conference following the Fed's rate decision on Wednesday. Powell also emphasized that the main goal of the significant rate cut was to stabilize the US labor market, stating, "We are confident in the current monetary policy adjustments and believe that this appropriate recalibration will help sustain a strong labor market, achieve moderate economic growth, and bring inflation back to a stable 2%." Powell also noted that the decision to cut rates by 50 basis points does not imply that Fed policymakers expect the US economy to slide into a recession. He stated, "There is currently no sign that the risks of an economic recession are rising. Our policy adjustments are mainly for readjustment to adapt to the current economic conditions." In summary, Powell stated that the Fed's monetary policy will be adjusted based on the future development of the economy, whether to speed up, slow down, or pause the easing measures, will depend on the economic situation. He mentioned that the future path of rate cuts will depend on changes in the labor market and inflation, and that the US economy remains strong at the moment. The unexpected rate cut of 50 basis points by the Federal Reserve and Powell's confident remarks on a "soft landing" for the US economy indicate that the rate cut cycle officially began in September and the US economy remains resilient. This is considered a significant positive for small-cap stocks in the US market that have been suppressed since the Fed's rate hike cycle in 2022. Jonathan Krinsky, Chief Market Technician Strategist at BTIG, believes that small-cap stocks could provide a better risk/reward level in the short term compared to large-cap stocks. In a previous report, Krinsky pointed out, "If the market's expectation of a 50 basis point rate cut by the Fed is confirmed, the rise in small-cap stocks is expected to accelerate." Lori Calvasina, Head of Global Equity Strategy Research at RBC Capital Markets, recently stated that the flow of funds into small-cap stocks in the US has not stopped despite continued outflows from large-cap stocks, indicating that more investors are looking to switch their investments to small-cap stocks. With the Federal Reserve rate cut cycle opening, the market's transition from "big to small" investment style becomes more apparent. The seven major tech giants that dominate the S&P 500 index, known as the "Magnificent 7," including Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Meta Platforms, have been the core drivers behind the continuous highs of the S&P 500 index. As global investors flock to these tech giants in 2023 and the first half of 2024, they are betting on these companies expanding revenue through AI technology, given the large market size and financial strength of companies like Apple and Google. Looking at the entire US stock market, the outperformance of the seven tech giants since 2023 compared to large-cap value stocks and broad small and mid-cap stocks is due to the global AI trend and the uncertain expectations of Fed rate cuts. The US economic growth trend is not too strong, nor is it too weak to fall into a recession. In this trading environment, the seven tech giants have become a "safe haven" for global funds amidst the uncertain expectations of rate cuts and slowing economic growth. If the Federal Reserve officially initiates the rate cut cycle and the US economy remains resilient without entering a recession, the US stock market is highly likely to rotate to small and mid-cap stocks that have suffered significant losses since 2022. These stocks are extremely sensitive to rate expectations and even a slight rate cut could boost their stock prices and valuations. Some Wall Street strategists believe that under the macroeconomic backdrop of a Fed rate cut, the performance of small and mid-cap stocks could far surpass the seven tech giants and broad large-cap stocks. This is mainly due to the fact that small and mid-cap stocks are highly sensitive to the Fed's benchmark interest rates and rely heavily on floating rate loans. Therefore, a rate cut by the Fed could significantly reduce the debt pressure on these companies, potentially increasing their profit margins and stock valuations. Therefore, with the rate futures market almost fully pricing in a 100 basis point rate cut by the Fed before the year ends, the classic rotation of small and mid-cap stocks and the recovery trend of profit margins could become apparent, leading to a shift in funds towards small and mid-cap stocks that benefit from the rate cut cycle and have very cheap stock prices and valuations, rather than the tech giants with historically high valuations. Investors are becoming more like "comparative shoppers," seeking out undervalued stocks in the midst of uncertain rate expectations. Overall, the shift in investment style from large to small, along with the Fed's rate cut cycle, indicates a potential turnaround for small and mid-cap stocks that have long endured losses, positioning them for a positive market performance amid a resilient US economy."" translates to "compare three families"."Bonjour, comment a va?" "Hello, how are you?"