In our last Economics Weekly we took the view that the U.S. economy had not yet entered a recession, but a number of leading economic indicators suggest that the probability is high that it will in the coming quarters. In this Economics Weekly, we discuss why heading into a recession is not typically the time when investors want to lean toward owning smaller-cap stocks; however, with historically low relative valuations, among other factors, it makes sense for longer-term investors to reexamine quality smaller-cap growth companies that could outperform early on in an economic downturn.

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Richard de Chazal, CFA, is a London-based macroeconomist covering the U.S. economy and financial markets.