Despite bursts of outperformance, small- and mid-cap stocks (SMID) have underperformed large-caps year to date -- as they have over the past five years. But they may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the trade and tariff debate, or fallout from unrest in the Middle East, the Russian invasion of Ukraine, issues in China, or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. Finally, there are long stretches in the record books when SMID stocks have outperformed large-caps. SMID stocks can be risky, but despite those risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 20% of the U.S. stock market's capitalization is comprised of SMID stocks.

Celestica, formerly a captive manufacturing division of IBM, became a separate electronic manufacturing services (EMS) company in 1996. Celestica provides end-to-end product lifecycle solutions for a range of technology markets, including communications, servers, storage, and consumer electronics. It also serves diversified nontechnology markets, including industrial, automotive, capital equipment, and medical. Based in Toronto, the company has over 21,500 employees.

Monday Tee Up: Tariffs, Jobs, Earnings Newly imposed U.S. tariffs (and the responses to them by the impacted countries) combine with the jobs report (due to hit the tape on Friday) and the ongoing flood or earnings reports to set the stage for a busy week. Last week, the Dow Jones Industrial Average gained 0.3%, the S&P 500 fell 1.0%, and the Nasdaq dropped 1.6%. So far in 2025, the DJIA is up 5%, the S&P is up 3%, and the Nasdaq is up 2%. Over the weekend, President Trump imposed tariffs on China, Mexico, and Canada. Canada announced their own retaliatory tariffs and, as of this writing, Mexico intends to respond. China said it will file a complaint with the World Trade Organization. The markets likely will experience some volatility as Wall Street assesses the impact of the tariffs. Items to consider are possible increased prices, supply-chain hiccups, changes to consumer spending patterns, and an uptick in overall inflation. Meanwhile, the earnings flow continues. On Monday, Palantir, Tyson Foods, and Clorox are among the companies that will report; on Tuesday, Alphabet, Advanced Micro, Merck, Amgen, and PepsiCo; on Wednesday, Novo Nordisk, Qualcomm, Uber, and Disney; on Thursday, Amazon.com, Eli Lilly, Bristol-Myers Squibb, Honeywell, and ConocoPhillips; and on Friday, Fortive, Kimco, and Cboe Global. Some 178 (or 36%) of the S&P 500 companies have reported for last quarter. Earnings so far are showing 12% growth from the prior-year quarter. That compares to a 9% growth rate last quarter. The Financial sector has had the most companies report, and the growth rate so far is 13%, according to Refinitiv. Argus forecasts S&P 500 EPS growth in 2025 at 12%. For 2026, we forecast 11. On the economic calendar, the Nonfarm Payrolls report for January comes out on Friday. Though that report will get the most attention, the Call of the Week from Argus' Chief Economist Chris Graja, CFA, is Nonfarm Productivity. Chris expects growth to top 2%, while the consensus is 1.7%. Chris offers the following thoughts. 'While the jobs report provides a timely assessment of how the economy is doing, productivity, though volatile, is the best measure of a country's long-term prosperity and of workers ability to earn more than the inflation rate. Worker prosperity will dominate the American political landscape for the next four years. Productivity growth also will reflect the degree of success from the billions being spent on Artificial Intelligence.' Last week, the Federal Reserve kept interest rates unchanged, as expected. Mortgage rates dipped one basis point, with the average 30-year fixed-rate mortgage now at 6.95%, according to FreddieMac. Gas prices fell a penny to an average of $3.10 per gallon for regular gas. The Atlanta Fed GDPNow indicator is forecasting for 1Q and calls for expansion of 2.9%. The Cleveland Fed Inflation Nowcast is forecasting for January and is at 2.85%. The next Fed rate decision is on March 19, with odds at 17% for a rate cut, according to the CME FedWatch rate tool. After that, the next meeting is in early May.

The S&P 500 is on target for another banner year in 2024, with an advance of more than 20%. The 2024 rally broadened out a bit from 2023, when only a handful of stocks propelled the market higher. In 2024, several sectors outpaced the S&P 500, including Communication Services, Information Technology, Consumer Discretionary, and Financial. Even the Utilities sector rose almost 20%. The average BUY-rated stock under Argus coverage increased 19%, while the average HOLD-rated stock gained 0.5%. Below are the Top-Ten performers from the Argus Universe last year, with representatives from four of the 11 major sectors, as well as the Bottom-Five performers.