Based on research released Monday, Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, believes that small-cap stocks have already priced in a recession and are currently de-risked. Calvasina noted that small-cap performance has been stable since January and is in a narrow trading range in comparison to large-caps. She stated, “While this doesn’t necessarily tell us that a bottom in the broader U.S. equity market is imminent, it does tell us that the equity market is behaving rationally. It has been our view for quite some time that small-caps, which underperformed large-cap dramatically in 2021, have already been de-risked and are baking in a recession.” She also pointed out the sectors that tend to perform best in the period leading up to the final rate increase in a rate-hike cycle. These include defensive sectors such as consumer staples, energy, financials, healthcare, and utilities. Calvasina wrote the sectors “tended to perform the best within the major index in the six-, three- and one-month periods before the final hikes in the past four Fed tightening cycles.”

Finsum: In a recent research note, Head RBC equity strategist Lori Calvasina believes that stable returns of small-cap stocks are due to recessionary factors already priced in.