U.S. stocks have been climbing higher the last four days, as talks between China and the U.S. seem to be making a little headway.
But some on Wall Street have been cautious about pouring money into stocks just because there seems to be intent on both sides to work out a deal.
That's where small caps stocks come in.
"Small cap tends to be a little bit more domestically focused... a little less international exposure so your small caps probably will be a little less impacted by the tariff talk," said Larry Wasserman, head of due diligence and investor opinion at PNC Investments.
Even if the earnings stream for a particular small cap stock doesn't grow by much, it might be more favorable than a large cap stock that sees a big hit to earnings as a result of higher costs from tariffs. "If you're specifically looking at the international question, the small cap stock that's not exposed to China for example might hold up a little bit better on a relative earnings basis," Wasserman added. Some companies absorb higher input costs as a result of tariffs, while others pass the cost onto the consumer, which can hurt demand and restrict earnings growth.
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