The financial giant Bank of America reportedly thinks large-cap stock dominance could give way to small-cap gains if the U.S. Federal Reserve cuts rates in the coming months.

In a client note reviewed by Yahoo Finance, Savita Subramanian, BofA’s head of US equity and quantitative strategy, says the market could mimic the environment of the early 2000s, when value and small-cap stocks outperformed after the dot-com bubble burst.

“History would suggest there is more to go in cap-weighted dominance. But if the Fed’s next move is a rate cut, and if the Regime indicator is shifting to a Recovery, we think the run may be closer to done…

[Federal Reserve] easing has been accompanied by Mega caps lagging more than leading, and higher inflation should support a broadening of the S&P 500 beyond defensives/secular growth.”

Subramanian’s analysts note that the largest 50 stocks in the S&P 500 have beaten the benchmark index by 73 percentage points in the past decade.

The CME FedWatch Tool, which generates probabilities using the 30-day Fed Funds futures prices, estimates there is an 83.1% chance the Fed will cut the federal target rate by 25 basis points at the Federal Open Market Committee (FOMC) meeting in September.

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