---
title: "Interest rate cut expectations ignite a frenzy in small-cap stocks! Jefferies warns: capital outflows and profit concerns still exist"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/255565369.md"
description: "Jefferies' latest report points out that despite the strong performance of small-cap stocks in August, which recorded the best performance for the same month since 2000, there are still underlying crises. The rebound in small-cap stocks is mainly driven by low market capitalization, low-quality, and unprofitable companies, and there has been a continuous outflow of funds from small-cap stock ETFs. Analysts expect that large-cap stock earnings growth will lead small-cap stocks in the third quarter, with the fourth quarter being a critical moment"
datetime: "2025-09-02T07:56:05.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/255565369.md)
  - [en](https://longbridge.com/en/news/255565369.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/255565369.md)
---

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# Interest rate cut expectations ignite a frenzy in small-cap stocks! Jefferies warns: capital outflows and profit concerns still exist

According to Zhitong Finance APP, Jefferies has released its latest monthly report on U.S. stock strategies, pointing out that small-cap stocks performed strongly in August, ending a prolonged period of underperformance compared to large-cap stocks. However, there are still hidden risks behind the small-cap stock rally.

The Russell 2000 Index rose 7% in August, marking its best performance for the month since 2000. The index has rebounded 35% from its low on April 8, outperforming large-cap stocks by 441 basis points. Micro-cap stocks performed particularly well, rising 9.3% in August and up 47% from their lows.

![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250902/1756798840880851.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

The report indicates that the rebound in small-cap stocks is mainly driven by low market capitalization, low quality, and unprofitable companies. The low market capitalization sector rose 10.5% in August, up 52.8% since April 8; unprofitable companies increased by 8.5% in August, up 52.4% from their lows; and high-beta sectors rebounded 63.8% from their lows. The rising expectations of interest rate cuts by the Federal Reserve and corporate earnings exceeding expectations have been key factors driving the rebound in small-cap stocks.

It is noteworthy that despite the impressive short-term performance of small-cap stocks, there has been a continuous outflow of funds from small-cap stock ETFs, with a cumulative outflow of $11.4 billion since the market low. Additionally, analysts expect that large-cap stock earnings growth will once again lead small-cap stocks in the third quarter, with the fourth quarter being a critical moment for "crossing the threshold."

In terms of stock styles, Jefferies stated that cyclical stocks performed steadily, rising 7.6% in August, recovering 40.2% from their lows, and up 10% year-to-date; while long-term growth stocks rose 6.8%, 33.1%, and 2.4%, respectively. As the Russell 2000 Index rebounded from its lows, bond proxy products lagged behind, rising 17.7% from their lows.

![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250902/1756799150285346.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

Jefferies also noted that since early April, actively managed funds have generally underperformed their benchmark indices, with only large-cap value funds outperforming the benchmark. Year-to-date, only 28.4% of the funds tracked by Jefferies have outperformed their benchmarks

### Related Stocks

- [Jefferies Financial Group Inc. (JEF.US)](https://longbridge.com/en/quote/JEF.US.md)

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