With New Inflation Data, Consider Small Cap Growth Options

The lower-than-expected GDP may indicate that the Federal Reserve’s efforts to utilize high interest rates to slow down the economy may be working. Within the report, consumer spending growth dropped 0.5%, down to an annualized rate of 2.0%.

With the new GDP data in mind, investors may feel gradually more optimistic that an interest rate cut from the Federal Reserve may occur this year. “The downward revision to economic growth as well as smaller downward revisions to inflation make the Fed a little more likely to start reducing interest rates by September,”  Comerica Bank chief economist Bill Adams told Reuters. “With the economy operating in low gear, a margin of slack capacity is opening up, and consumers are feeling less flush.”

Even with GDP starting to simmer down, these findings can bode well for small-cap investors. While consumer spending may be lower, this could ultimately lead to the Federal Reserve committing to at least one interest rate cut this year. Small-caps have historically done well amid rate cuts, as they tend to have a larger floating-rate debt pool than larger companies.

In looking for small-cap investment options that can benefit from lowering inflation, the iShares S&P Small-Cap 600 Growth ETF (IJT B+) comes to mind. The fund is growth-oriented, investing in small-cap stocks that are expected to outperform the market.

While risk is always present with small-cap investing, IJT’s investment strategy has proven to have strong results. As of April 30th, 2024, IJT had a total return of about 18% over the last 12 months.

As a whole, the market still remains generally uncertain as to when we should expect interest rates to change. Nonetheless, utilizing established funds such as IJT can help investors access small cap returns for the long term.

For more information, please visit VettaFi.com | ETF Trends.