Chart of the Week
The Conference Board’s Consumer Confidence Survey includes questions on inflation expectations. In February, following a sharp decline since 2022, the survey revealed that consumers expect price rises to reach 6% over the next 12 months.
This finding is consistent with data from the latest University of Michigan Consumer Sentiment Survey where short-run (+4.3% one-year forward) and longer-run (+3.5%) expectations increased. Noteworthy is that partisan bias tends to influence inflation expectations. In recent months, Democrats have perceived inflation as set to surge while Republicans expect a sharp fall. For independent voters, inflation will increase.
OUR ANALYSIS
In terms of corporate fundamentals, small-cap companies often face tighter credit conditions and have access to fewer financing sources than larger-cap companies. Small caps are more reliant on floating-rate debt, meaning that high interest rates can significantly increase their financing cost and that the current backdrop of falling interest rates should work in their favour.
In terms of stock market performance, small caps are typically more sensitive to macroeconomic change than larger-cap stocks. Lower interest rates should revive eurozone growth and boost business confidence for the year ahead. We also believe that a rise in the purchasing managers’ index, especially manufacturing, would attract inflows to small and mid-cap funds and help to lift performance in the segment.
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Written on 28 February 2025. This is not an investment advice. Opinions subject to change.
See also: https://latribune.lazardfreresgestion.fr/en/united-states-is-it-possible-to-reduce-federal-spending/
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