A sell-off in high-flying growth stocks this week hints at nervousness ahead of Jerome Powell’s remarks at Jackson Hole, but there’s another area of the stock market where investors should be prepared to see outsize swings after the Fed chief speaks on Friday.

Analysts at Bank of America wrote this week that small-caps are likely to see big moves in either direction on the back of Powell’s comments on the path of monetary policy during the Fed’s annual policy symposium.

In an August 20 note, analyst Jill Carey Hall wrote that the speech could prove to be a significant near-term catalyst for the Russell 2000, the index of small-mid cap companies, depending on what it reveals.

“A dovish speech could spur a rally, while a more hawkish one could spur near-term downside given market pricing for two cuts by year-end,” she said.

Powell’s speech is expected to set the tone for monetary policy for the rest of the year. A dovish nod toward rate cuts in September and beyond is expected to be a bullish driver for stocks, but there’s some doubt over how accommodating the Fed chief will be after the latest round of economic data was a mixed bag.

The CME FedWatch Tool shows 73% odds of a rate cut in September, down from nearly 100% a week ago.

The analyst added that stocks in the small-cap category have historically outperformed larger peers during rate-cutting cycles that played out close to periods of economic recession. However, in non-recessionary times, their performance has been more mixed.

Other investing experts have expressed similar optimism for small- and mid-cap stocks amid the Russell 2000’s outperformance over the S&P 500 in the last month.

However, the question of whether the US economy is headed toward a recession is presently unclear.

“Despite the recent weak employment report, we continue to expect the US economy to avoid recession in 2025,” Ben Herzon, economics director at S&P Global Market Intelligence, recently said.

Moody’s economist Mark Zandi recently said that the US is not in a recession yet, though he sees it as a strong possibility.

As such, uncertainty remains high as the market prepares for Powell’s address, especially since views are divided over whether he will signal a shift toward a more dovish policy stance. What is clear is that small-cap companies have a lot riding on his speech.

As Carey Hall added, “A cut in the absence of weaker macro data could be more positive than historically, given the increased sensitivity of small caps to interest rates/elevated refinancing risk.”