Small caps rallied sharply after the latest inflation print, but a more than 10% move in a matter of days now has investors debating what's next for this...
for the first six months of the year, small caps have soared over the past week. The historic rally followed) index has gained about 8%, far outpacing the S&P 500's less than 1% in the same period. On Thursday, however, the move showed some signs of stalling out. The Russell 2000 dropped more than 2%, extending losses from Wednesday's trading session.
"We think there is room for the rotation into low quality to persist if rate cuts remain priced and the Trump 2.0 trade carries on ahead of US elections," UBS Investment Bank US equity derivatives strategist Maxwell Grinacoff wrote in a note to clients on Thursday.Grinacoff added that the keys to the rally continuing include further cooling in inflation and economic data showing similar, or higher, levels of growth.
As investors moved to price in a 100% chance of an interest rate cut from the Fed in September, the Russell 2000 rose than 11% in five trading days, including a more than 3% bounce on Tuesday alone. This marked the largest outperformance from the S&P 500 in five-day period on record, per Bespoke Investment Group.
Traders work on the floor of the New York Stock Exchange during afternoon trading on April 02, 2024 in New York City. On Wednesday, Bank of America's head of US equity and quantitive strategy Savita Subramanian told Yahoo Finance the trend in small caps is "likely to persist."But to Subramanian that doesn't mean simply buying the Russell 2000 index is the right trade."Their valuations are at levels that would warrant a pretty equitable comeback," Subramanian said.
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