- As the Bank of Canada (BoC) continues its campaign of monetary easing, investors are turning their attention to small-cap stocks
- Small-cap companies, typically defined as those with market capitalizations between $300 million and $2 billion, are often more sensitive to changes in borrowing costs
- While small-caps can be more volatile, they also offer outsized growth potential
- Even if the BoC holds steady next month, the cumulative effect of prior cuts has already created a more accommodative environment for small businesses
As the Bank of Canada (BoC) continues its campaign of monetary easing—cutting its policy rate seven times since mid-2024—investors are turning their attention to a segment of the market that often leads in economic rebounds: small-cap stocks.
Why small-caps thrive in easing cycles
Small-cap companies, typically defined as those with market capitalizations between $300 million and $2 billion, are often more sensitive to changes in borrowing costs. These firms tend to rely more heavily on debt to fund growth, making them early beneficiaries of lower interest rates. When monetary policy becomes less restrictive, as it has in Canada over the past year, small-caps can access cheaper capital, invest in expansion, and improve profitability.
With the BoC’s next rate decision looming in early June—and market odds now favoring a pause in cuts due to recent inflation data—investors are watching closely. Even if the central bank holds steady, the cumulative effect of prior cuts has already created a more accommodative environment for small businesses.
Three Canadian small-cap stocks to watch
Here are three standout small-cap stocks that could benefit from the current monetary backdrop:
1. Hammond Power Solutions (TSE:HPS.A)
Sector: Industrials | Market Cap: ~$1.2B
Hammond Power Solutions manufactures custom electrical transformers and has seen strong demand driven by infrastructure upgrades and electrification trends. With lower borrowing costs, the company can more easily finance capacity expansion and R&D, positioning it well for long-term growth.
Sector: Healthcare | Market Cap: ~$1.1B
Savaria specializes in mobility solutions such as stairlifts and home elevators, catering to aging populations in North America and Europe. As interest rates fall, consumer financing becomes more accessible, potentially boosting demand for its products. The company also benefits from demographic tailwinds and a growing healthcare focus.
Sector: Technology | Market Cap: ~$1.8B
Docebo provides AI-powered learning management systems to enterprises worldwide. As companies invest in digital transformation, Docebo’s scalable SaaS model stands to gain. Lower rates can also support M&A activity and international expansion, both of which are on Docebo’s strategic radar.
Conclusion: A window for small-cap investors left ajar
The Bank of Canada’s rate cuts have opened a window of opportunity for small-cap companies to thrive—and for investors to capitalize. While small-caps can be more volatile, they also offer outsized growth potential, especially in the early stages of economic recovery.
With the next BoC decision on the horizon, now is the time for investors to sharpen their focus. Dive deeper into company fundamentals, assess balance sheets, and consider how each business is positioned to leverage this low-rate environment.
Opportunity favours the prepared—so let your due diligence lead the way.
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