BofAML's Outlook for Small Caps

The video discusses the perception of small caps as more insulated from trade risks due to their domestic focus, with 21% foreign sales compared to 30% for the S&P 500. However, foreign exposure for small caps is rising, while it is falling for large caps. Small companies face challenges from trade and tariffs, impacting their earnings. They tend to underperform during risk-off periods and geopolitical strife. Despite being lower in quality, small caps are expected to outperform, with the Russell 2000 benchmark showing a trend towards lower quality.

What is the perceived advantage of small caps in terms of trade risks?

• They have a higher percentage of foreign sales.

• They are more focused on domestic markets.

• They are more adaptable to supply chain changes.

• They have a higher quality benchmark.

How has the foreign exposure of small caps changed in recent years?

• It has been fluctuating unpredictably.

• It has been rising.

• It has remained the same.

• It has decreased significantly.

Why might small caps struggle during periods of geopolitical tension?

• They have a high level of foreign sales.

• They are less nimble in adjusting supply chains.

• They are more focused on technology sectors.

• They have a strong international presence.

What is expected of lower quality stocks this year?

• They are expected to fluctuate widely.

• They are expected to underperform.

• They are expected to outperform.

• They are expected to remain stable.

What trend has been observed in the Russell 2000 Benchmark over the last several years?

• It has remained stable in quality.

• It has been fluctuating in quality.

• It has been decreasing in quality.

• It has been increasing in quality.