Fiera SMID Cap Growth Strategy: Second Quarter Commentary

In the second quarter, US equity markets experienced a rebound. The S&P 500 saw a return of 10.9%, while the Russell 2000 Growth and Russell 2500 Growth indices posted returns of 12.0 % and 11.3% respectively. Tech-focused indices, such as the Russell 1000 Growth, Nasdaq and Russell Midcap Growth, performed even better, with gains eclipsing 17%. In contrast, value stocks lagged behind, with the Russell 1000 Value returning 3.8% and the smaller-cap Russell 2000 Value rising 5.0%

This strength in tech-heavy indices followed a significant decline in the first quarter, during which the Nasdaq dropped by 10.3%. Concerns about the AI frenzy were alleviated as earnings results largely met expectations. From a profitability standpoint, megacap tech companies demonstrated particular strength, with free cash flow margins at 20%, compared to 5% for the rest of the broad market. A key debate remains whether their substantial investments in AI will pay off. Earnings in the first quarter were up 10% and were supported by the current narrative. Momentum strategies gained traction after hitting a low in the first week of April. The market currently seems focused on immediate earnings, largely ignoring potential changes in growth rates due to macroeconomic factors.