For investors seeking a unique blend of resilience and growth opportunity, mid-cap investing can be an intriguing choice. These securities are viewed as big and safe compared to the highly volatile small-cap exposure. But when compared to the stability of large caps, these are relatively risky bets. However, investors ignoring this key segment of the investing spectrum should note that many mid-cap ETFs have been hovering around 52-week highs of late.
What’s Acting Against Large Caps?
The global market, though steady after a slew of trade deals between the United States and other nations, still faces President Trump’s tariff tensions. After eight months of political waggling and negotiations on the tariff front, Trump’s tariffs now come with an added uncertainty cost. One study estimates that such uncertainty has actually cut U.S. investment by 4.4% in 2025, per an article published on The Conversation.
IMF projects global growth to decline from 3.3% in 2024 to 3.2% in 2025 and 3.1% in 2026, with developed economies growing around 1.5% and emerging market and developing economies just above 4%.Any slowdown in foreign economies might make some investors cautious about large-cap stocks because of their higher foreign exposure.
What’s Favoring Smaller-Cap Stocks?
The Fed has enacted three rate cuts totaling three-quarters of a percentage point since September this year. Agreed, the Fed’s outlook for 2026 looks more controlled now. Policymakers continue to project just one rate cut next year, consistent with their September forecast.
The Fed now projects real GDP to be 2.3% in 2026 (up from 1.8% predicted in September), 2% in 2027 (up from 1.9% projected in September) and 1.9% in 2028 (up from the earlier estimate of 1.8%). Since small-cap stocks have more domestic exposure, these projected data points call for a pint-sized stock rally.
Unemployment rate projections are maintained for 2026 at 4.4% while the rate is projected to decline by one percentage point to 4.2% in 2027. The PCE inflation is projected to be 2.5% (down from the earlier estimate of 2.6%). This scenario should also favor the domestically-focused stocks like small caps and mid caps.
But then, with tariff-led inflation fears doing the rounds and the labor market weakening, small-cap stocks may see high volatility. So, it is better to consider more stable companies’ stocks than the pint-sized ones.
Reasons for Mid-Cap Investing
All in all, the situation is not entirely favorable for small or large caps. Thus, it is advisable to take a middle-of-the-road approach and gain exposure to a space that offers the best of both worlds. In this regard, we highlight a few mid-cap ETFs that have surged over the past month and may do so in the coming days. These ETFs have beaten SPDR S&P 500 ETF Trust SPY (up 0.9%) over the past month.
Mid-Cap ETFs in Focus
First Trust Mid Cap Core AlphaDEX Fund FNX – Up 5.2% over the past month
State Street SPDR S&P 400 Mid Cap Value ETF MDYV – Up 4.8% over the past month
SPDR S&P Midcap 400 ETF Trust MDY) – Up 3.8% over the past month
iShares Core S&P Mid-Cap ETF IJH – Up 3.8% over the past month
iShares Russell Midcap ETF IWR – Up 2.4% over the past month
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Pediatrix Medical Group, Inc. (MD): Free Stock Analysis Report SPDR S&P 500 ETF (SPY): ETF Research Reports iShares Core S&P Mid-Cap ETF (IJH): ETF Research Reports First Trust Mid Cap Core AlphaDEX ETF (FNX): ETF Research Reports iShares Russell Mid-Cap ETF (IWR): ETF Research Reports State Street SPDR S&P 400 Mid Cap Value ETF (MDYV): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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