Small-cap and mid-cap stocks tend to be interest rate sensitive. The core reason is that many of these companies are dependent on debt instruments to meet their long-term financial obligations.

Although the Federal Reserve is wobbling on a possible rate reduction this year due to sticky inflation, the central bank is widely expected to slash rates no later than 2025. This event should prove to be a major catalyst for smaller companies that have struggled in this high-rate environment.

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Source Fool.com