In down markets, smaller names tend to take a beating as investors flock to less risky companies. However, history shows that small caps are also the first to bounce back when the economy is heading out of a recessionary period.

Small cap stocks are a nickname for stocks of companies that typically have
a small market capitalization. (Usually somewhere between $2 million and
$300 million. Definitions vary.) Market capitalization, simply put, is the price
of the company’s stock multiplied by the number of shares outstanding. It’s
basically the value the market places on a company.

Small companies are more likely to be exterminated in a recession. So small-cap stocks get hit the hardest in a bear market, and their prices are low when the market turns up.
A small company is usually focused on one or two product lines and can gear up rapidly for increases in demand. It can take a year or so of a good economy for all the divisions of a major company like General Electric to start producing profits.

Small companies are often heavy borrowers, and low rates mean big savings — and increased profitability.