Goldman Sachs: Three catalysts revive small caps, predicts tech pullback
GS•Goldman Sachs highlights three drivers – tightening credit spreads, rising M&A activity and a shift into out-of-favor sectors – as key catalysts for a resurgent small-cap trade. Equity strategist Timothy Garrett forecasts investors will reduce technology holdings in portfolios in the second half, favoring defensive names.
1. Small-cap rally catalysts
Goldman Sachs strategists identified three key triggers behind the rebound in small-cap stocks: tightening credit spreads that lower borrowing costs, a surge in merger and acquisition activity boosting valuations, and a rotation of investor capital into previously out-of-favor sectors. Together, these developments have encouraged asset managers to increase weightings in smaller companies.
2. H2 tech exposure reduction
Timothy Garrett, head of equity research, warns that investors plan to dial back technology sector allocations in the second half of the year. He anticipates a rebalancing towards defensive sectors and income-generating assets as market volatility rises and growth stocks face heightened risk.
