Fed policy shifts could trigger a move to small caps – Morgan Stanley

Federal Reserve's Impact on Small Caps: The Federal Reserve's actions could lead to a shift from large-cap stocks to smaller capitalization and lower quality stocks, contingent on specific economic scenarios such as reduced tariffs on Chinese goods and weakening economic data without triggering a recession.

Morgan Stanley's Economic Outlook: Morgan Stanley suggests that a more sustainable transition to small cap leadership would occur during a mild recession with negative payroll numbers and rising unemployment, prompting aggressive Fed rate cuts, similar to market patterns observed in early 2020.