Layering the same macro worries—from tariffs to interest rates to potential recession to freeform uncertainty—on top of one another can only go so far. As we’ve seen since the “Liberation Day” selloff, the bad news loses its sting at some point and investors stop re-discounting the same hypotheticals. 

The economy thus far has been more resilient to tariff pressures than was generally anticipated. Decent economic growth and manageable inflation in the US remain well supported, in our view, by low energy prices, strong employment and an undersupply in housing. Smaller companies are broadly expected to benefit from these trends. The consensus estimate Russell 2000 Index earnings growth in 2025, for example, currently stands at 41%, down only slightly from expectations for 50% growth on January 1 despite the many challenges that have emerged throughout the year.¹  

Given this relatively benign backdrop, it’s not hard to imagine the emergence of additional small cap tailwinds. Take, for example, the market for initial public offerings (IPOs). Though volume in April was disrupted by the tariff drama, the 97 initial public offerings (IPOs) launched in the first half puts 2025 on track to easily surpass the 150 offerings in 2024 and the 109 in 2023².  While these deals were not in our target capitalization range, momentum can be contagious. 

Mergers and acquisitions (M&A) can be similar. Though M&A remains depressed, it’s been our experience that it creates a self-reinforcing dynamic as activity builds, as neither buyers nor sellers want to be left at the table without a partner. All else being equal, a Federal Reserve rate cut would likely bolster both IPO and M&A activity, as well as the small cap market in general.
 

The US dollar is down roughly 11% year-to-date (YTD), marking its steepest slide in the first six months of a calendar year since the early 1970s.¹ With the effects of new US policy still unfolding and the impact on growth and interest rates uncertain, many investors are turning to international markets. 

International value equities are increasingly standing out. As foreign currencies like the euro and pound have rallied, earnings and dividends from international companies have become more attractive when translated back to US dollars. This currency boost, combined with historically low valuations, gives international value stocks a solid advantage. 

Despite US mega-cap growth dominating headlines, performance data tells a different story. International equities began the year strong with the MSCI EAFE gaining roughly 19%, while US markets lagged, with the S&P 500 gaining around 6% YTD. After years of US outperformance, many investors saw their US allocations become a larger portion of their portfolios than intended. With a shift to international equities, investors may be increasing global exposure, signaling growing conviction in markets abroad.

Changes in Dollar Strength Have Prompted Shifts in Relative Equity Performance
Index Price Return During Various Currency Regimes, January 1980 through June 2025