Small caps will benefit as investors look for top line growth, says Needham's Retzler

Core Viewpoint - The small cap trade has shown strong performance recently, with the Russell 2000 index up nearly 5% in three days, indicating potential for continued momentum in the coming months [1]. Group 1: Market Conditions - The Federal Reserve's supportive stance, including anticipated rate cuts extending into 2026, is expected to create a favorable environment for small cap stocks [3]. - Recent corrections in the market, particularly in November, have been overcome, suggesting a return to growth for small caps [3]. Group 2: Investment Dynamics - Tax cuts for businesses and consumers are anticipated to stimulate market expansion, benefiting mid and small cap companies [3]. - Increased liquidity from the Fed's actions is expected to flow into small caps, which have historically been viewed as riskier but offer higher potential returns [5][6]. Group 3: Company Insights - Recent meetings with approximately 40 companies in California revealed that many are experiencing strong order flows and are focused on meeting capacity, indicating robust demand despite broader market concerns [7]. - The current setup for small caps resembles conditions seen in 2019 and 2020, when they experienced significant growth [7].