Jacob Sonenshine

Many stocks are bound to make big moves -- up or down -- when the Federal Reserve announces its interest-rate decision on Wednesday.

It's almost a given that the Fed will cut rates by a quarter-point. Markets have reflected as much, with Treasury yields having dropped and the stock market rising in the past few months.

Wall Street is encouraged by the fact that the Fed has made clear that it wants to support the economy, especially with job growth slowing to a crawl in the past couple of months.

This picture has pushed up smaller market capitalization stocks the most -- a key signal when it comes to what to expect Wednesday.

Small-caps tend to be more volatile than the large-cap S&P 500 because, as lower quality companies with lesser ability to navigate treacherous economic and financial conditions, their stock prices have more to lose on the downside and more to gain on the upside.

That's why the Russell 2000, an index of small-caps with an average market cap of $4 billion, is up 11% since Aug. 1, the date that marked the end of a brief market decline and began a new rally based on low-enough inflation for the Fed to cut rates. The S&P 500 is up 6% since then.

The gain for small-caps foreshadows the type of move it could make Wednesday -- for better or for worse.

Fed Chairman Jerome Powell could disappoint the market by announcing a cut and then tell reporters at a news conference that the central bank isn't sold on another cut this year. If that happens, bond yields would jump and small-caps would sink.

But if Powell says the Fed is willing to cut again before year's end, Treasury yields could drop even more. If they do, changes are good that small-caps would outperform, given the way they're trading.

So we scoured for the more volatile small-caps, the ones that should see the largest moves. We looked for names that have gained even more than the Russell 2000 since Aug. 1, are in economically sensitive sectors, and have climbed more on the back of economic expectations and less on their own earnings reports.

In short, we only wanted to look at stocks that are clearly sensitive to economic expectations so we can confidently identify ones that are poised to make big moved based on what Powell delivers.

One is Beazer Homes USA Inc., with a market cap of $782 million. The stock is up 21% since Aug. 1. It reported earnings July 31, closed lower on Aug. 1, and then rallied as expectations for lower rates intensified.

Another is Toll Brothers, a home construction company with a market cap of $13.7 billion. It has gained 16%. It reported earnings in mid-August, barely moved on the report, and then kept gaining. The smaller KB Home has a market cap of $4.5 billion and is up 14%. It reported earnings in June.

Elsewhere, Banc of California, a $2.4 billion lender, has seen its stock advance 16%. It reported earnings in late July. Western Alliance Bancorp has a $9.7 billion market cap and is up 13%. It reported earnings in July.

JetBlue has a market cap of $1.8 billion, is up 14% and reported its quarter in July. Alaska Air Group, with a $6.7 billion market value, is up 14% and reported in July.

Kohl's, with a $1.8 billion market cap, is up 48%. Most of its gain came before its earnings in late August, though the stock did pop after the report.

The point: Traders stand to make or lose a lot of money Wednesday, whether they're betting on or against the most volatile names. These are the types of names that will make or break the day for those traders.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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September 16, 2025 15:38 ET (19:38 GMT)

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