After the Russell 2000 (^RUT) rally in mid-July, investors started bracing for a potential market rotation out of Big Tech. Bank of America Securities senior US equity strategist and head of US SMID-cap strategy Jill Carey Hall joins Market Domination to discuss the state of small caps ahead of the Federal Reserve's interest rate cutting cycle.

Carey Hall believes that interest rate cuts will benefit small-cap stocks. However, she explains, "there's sort of two things that need to happen for a broader and sustainable rally in the Russell 2000. And one was confidence in Fed rate cuts, which we started to see in July after the CPI (Consumer Price Index) data... the other is evidence that the fundamental story is intact because investors have been anticipating a big earnings recovery this year, and we're obviously starting to see that for large-cap corporates. For small caps, the earnings recovery keeps getting pushed out." She notes that small cap expectations keep getting revised down, and are still negative on a year-over-year basis.

Whether or not there is a sustainable rally on the horizon for small caps, Carey Hall still sees some opportunities. She notes that valuations are cheap and there are profitable small-cap companies that are seeing their earnings recover and have positive revisions.

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This post was written by Melanie Riehl