04:14 PM EDT, 03/11/2025 (MT Newswires) -- The recent stock market pullback makes mid-cap equities more attractive as the Federal Reserve loosens its monetary policy, Wells Fargo Investment Institute said on Tuesday.

The investment adviser upgraded US mid-cap equities to favorable from neutral.

"Companies smaller than those in the S&P 500 index have struggled through one of the most difficult operating environments in recent history alongside a historical (Fed) cycle of rising interest rates and decades-high inflation rates," Wells Fargo Investment Institute said.

Since these companies tend to have less flexibility to control costs than their larger peers, their survival through the turmoil puts them in a good position as interest rates have gone down and the economy has remained strong, according to the advisory firm.

"The group leans more cyclically than large-cap equities, meaning it can be more sensitive to an acceleration in economic growth," Wells Fargo said.

Market sentiment has soured in recent weeks amid increasing tariff uncertainties. US benchmark equity indexes tumbled Monday.

"The recent selloff has improved the risk-return balance for US mid-cap equities," Wells Fargo said.

Canada's Ontario province has agreed to suspend a planned 25% surcharge on electricity exported to certain US states after US Commerce Secretary Howard Lutnick agreed to renewed trade discussions, Ontario Premier Doug Ford said Tuesday.

Earlier in the day, US President Donald Trump said he will double the proposed steel and aluminum tariffs on Canadian goods to 50%, in response to Ontario's move to place duties on electricity sent to the US.

The bank remains more cautious on small-cap equities and maintained its neutral rating on this piece of the market, pointing to excessive leverage and a "poor" earnings track record.