Small, Medium, and Large Cap Stocks

The rally in the S&P 1500 has certainly broadened in recent weeks as the Fed started to cut the federal funds rate (FFR) by 50bps on September 18 and again on November 7 by 25bps. The S&P 400 MidCaps and S&P 600 SmallCaps have been rising in record high territory in recent weeks along with the S&P 500 which has been rising in record high territory since the start of this year (chart). Lower interest rates benefit smaller companies that have floating-rate debt and don't have too many other options for raising money in the capital markets as do larger companies. Lower interest rates have also reduced concerns that the so-called "long-and-variable lags" of monetary policy will finally cause a recession.

The problem is that while the FFR is down 75bps, interest rates have been mostly rising along with the US Treasury yield curve (chart).