SPMD: A 25% Discount To The S&P 500 That Should Be Monitored

2026-05-26 17:45:46 ET

Introduction

No matter where people stand in the debate about long-term inflation, I continue thinking that we are now in a 3% World, as de facto, we have been since the post-pandemic rebound. There are several consequences of this shift, and one of the most important ones is that discount rates are higher, which generally hurts mid-cap stocks. At the same time, if inflation stays in a moderate range (between 2.5% and 3.5%) and economic growth is steady, mid-caps can benefit from this environment. In particular, companies that belong to the Industrials and Materials sectors can benefit from a higher-for-longer environment, while Financials can benefit from higher yields. On the other hand, when we factor in the AI revolution, we can debate whether mid-caps belonging to the information technology sector will be wiped away or will achieve higher efficiency and higher profits. In my AI sector rotation framework that I recently published, I took the contrarian stance - numbers at hand - that we are going to see value creation moving from infrastructure to application software and industrials. These are the segments to which State Street SPDR Portfolio S&P 400 Mid Cap ETF ( SPMD ) is most exposed, with a cumulative weight of 41%. Therefore, if my call is correct, we can't overlook SPMD....

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