Small caps are currently trading at a 19% discount to their typical valuations, whereas mega-cap shares have an 18% premium, according to Bank of America. The underperformance of small-cap stocks this year was driven by stubborn inflation, high-interest rates, and fears of a recession. About 30% of companies in the Russell 2000 are unprofitable and are much more sensitive to economic growth than mega-cap firms, which have a lot of cash and more stable businesses.