Jill Carey Hall on Small-Cap Stock Selection Amid Tariffs and Economic Uncertainty

Small-Cap Performance and Earnings Outlook

• 📉 Small caps have had a dreadful year, with the expected earnings recovery that began in 2024 being pushed out more than a year.
• ⚠️ Despite some potential good news on tariffs, there remains significant uncertainty, and earnings revisions have continued to be negative.
• 🗣️ Commentary from small-cap companies during the last earnings season was more negative than from large-cap companies, and guidance so far this season has been weak for both.

Navigating Selectivity in Small Caps

• 🎯 Investors need to be selective within the small-cap space due to varying sensitivities to tariffs, global vs. domestic exposure, and leverage.
• 🔑 The recommendation is to focus on higher-quality small caps, specifically profitable stocks with strong operating margins, which have been recent outperformers.
• 📈 Stocks experiencing positive earnings revisions are favored, especially against a broad backdrop of negative revisions.

Sector and Size Segment Opportunities

• 🛡️ For a defensive approach, utilities are highlighted as a strong sector across both small and large caps.
• 📊 Midcaps are identified as the best-performing size segment this year, with better revision trends and cleaner balance sheets.
• ⚠️ Midcaps are considered less at risk from tariff-related earnings hits compared to small caps, which have thinner margins.