Small-cap stocks are finally having their moment, and it’s all thanks to the Federal Reserve hinting at rate cuts.

After months of being stuck in the shadows of big tech, the Russell 2000 Index, the go-to benchmark for small caps, has jumped 9% in just three weeks, leaving the Nasdaq 100’s modest 3.2% gain in the dust.

Jerome Powell’s recent comments at the Jackson Hole symposium got investors buzzing, with whispers of a potential interest-rate cut as early as next month.

That’s huge for smaller companies, which often feel the pressure of higher borrowing costs more than their large-cap peers.

Small Caps Are Getting Big Love

Strategists at Bank of America and UBS are openly bullish. BofA’s Jill Carey Hall says small caps could keep outperforming as long as no big economic curveballs pop up. UBS strategists agree, pointing out that cheaper borrowing could help companies with tighter balance sheets breathe a little easier and possibly grow faster.

And it’s not just talk, investors are pouring serious money into the iShares Russell 2000 ETF, showing they believe the small-cap train still has steam.

Not Everyone Is Fully Convinced

Of course, not all experts are throwing confetti. RBC Capital Markets’ Lori Calvasina is still playing it safe, calling small caps a neutral pick for the long haul. She warns that the same economic concerns prompting a possible September rate cut could also weigh on these stocks if growth slows too much.

Even with some hesitation, there’s still optimism. Truist Financial’s Keith Lerner recently upgraded his outlook for small caps, pointing to stronger earnings trends and attractive valuations.

For context, the S&P 600 Small-Cap Index still trails large caps by roughly 12% over the past year, meaning there’s room for a catch-up rally if conditions stay favourable.

Investors Seen Pivoting

If you’ve been avoiding small caps, this could be a good time to start paying attention.

Momentum, potential rate cuts, and improving earnings trends all point to opportunities, but like any market move, it’s not risk-free.

Small caps are moving fast, and if Powell follows through with a cut, the rally could stick around longer than sceptics expect. Keep an eye on the Russell 2000. The comeback might just be getting started.