Over the past few months we’ve enjoyed a resurgence in the small cap Russell 2000 index, which led stocks higher from November. Prior to that, the $IWM had woefully underperformed the larger caps — with the NASDAQ up 50% vs the Russell barely up 5%.
We are seeing that divergence assert itself today, as small caps dive lower by 0.9% against a higher NASDAQ. While it’s tempting to believe the opposite will occur — it is more likely the trend of the past year will continue. If stocks do trade up in 2024, it’ll likely be led higher by mega cap monopolies. The case for small caps is best rooted in lower interest rates and higher growth. At the earliest, rates will not be cut until Q3, so the case for small caps will need to come in 2025.
The morning drop was quickly bought and now we’re rolling higher. Breadth is a paltry 51% and gains are concentrated in biotech and tech. I am +13bps looking for more risk into the close.
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