VT's mid- and small-cap components face near-term pressure from rising rates and a stronger dollar, but potential policy intervention may drive their outperformance relative to the S&P 500 in 2027.

This one was titled: "VT, will all mid- and small-caps harm or help in the long run?" It appears that the recent interest rate rise is placing a heavier burden on mid- and small-caps in VT compared to the S&P 500.

How significant will this be for the future? That is unlikely to be the case. VT is the broad global stock market index. This is weighted based on market capitalization, just like the S&P 500.

What really puts those stocks under pressure is the fact that we are dealing with a rise in the US dollar, a rise in the risk premium, and a rise in interest rates; and those factors generally weigh more heavily on cyclical sectors such as international equities, other regions, as well as small and mid-caps.

But it is not the small and mid-caps that are putting pressure on the broad global stock market. It is the fact that international stocks are now starting to lag behind the core components of the US stock market—the sectors that are less economically sensitive to this interest rate rise—that will likely depress future earnings expectations .

But again, if we are right in our view regarding the coordinated policy intervention that is coming , that is probably on the horizon—you know, this persistent dawdling towards paradigm D to solve the problem of the geopolitically driven supply and demand imbalance in the government bond market—then it is very likely that 2027 could well be the opposite of what we have seen in recent weeks, namely a substantial outperformance of international equities, small caps, and mid caps relative to the market capitalization-weighted S&P.