1. If bond yields fall significantly, small-cap and mid-cap stocks may outperform in the short term. The rally beyond large-cap technology stocks may also spread to previously pressured sectors related to the "economic reopening trade," including airlines, automobiles, footwear/sports apparel, residential construction, and restaurants. These sectors have been suppressed by consumer concerns, oil prices, inflation, and interest rates, and their positions have been reduced to single-digit levels. Therefore, once interest rate pressures ease, their rebound potential may be greater.
2. However, JPMorgan maintains its overall preference for large-cap stocks and cautions against shorting the Russell 2000 before the next Fed meeting, as small-cap stocks may experience a strong rebound if yields suddenly decline. (JPMorgan report, September 21)
