Core Viewpoint - Jefferies analysts predict that large-cap tech stocks may underperform small-cap stocks in the coming years due to the impact of Federal Reserve interest rate cuts [1] Group 1: Market Performance - Since 1990, during periods of Federal Reserve rate cuts, the S&P 500 equal-weight index has outperformed the traditional market-cap weighted index [1] - In the past four rate-cut cycles, the S&P 500 equal-weight index outperformed the traditional S&P 500 index by 0.6% in one year, approximately 4% in two years, and averaged 12.5% in four years [1] - The greater the rate cut by the Federal Reserve, the better the performance of the equal-weight index [1] Group 2: Current Market Trends - Following the recent "non-farm payroll shock," there has been an adjustment in rate cut expectations, with the Nasdaq 100 index dropping by 2% and the S&P 500 index by 1.6%, while the S&P 500 equal-weight index only fell by 1% [1] - The next Federal Reserve rate cut is anticipated to occur when the weight of tech giants in the index reaches a record high due to "crowded trades" [1] - Jefferies suggests that it may be time to rotate out of large-cap tech stocks, as value and small-cap stocks tend to perform better over the long term [1] Group 3: Valuation Discrepancies - Jefferies' strategy team highlights a significant valuation gap in the U.S. stock market, with the highest and lowest valuation groups in the S&P 500 index differing by 26, which is at the 87th percentile of observations since 2009 [1] - The crowded nature of tech stocks presents more downside risk, according to Jefferies [1] Group 4: Investor Behavior - This year, tech giants have performed well, leading investors to favor large-cap stocks, with a recent trend of small and mid-cap stocks rotating into large-cap stocks [1] - The Russell 2000 ETF experienced an outflow of $4.9 billion last week [1] - Following the slowdown in non-farm payroll data, market policy expectations have shifted significantly, with a two-thirds probability of three rate cuts by the end of January next year [1]