The Russell 2000 Index just ended its longest streak without hitting a new peak in its entire history.
Yesterday, the iShares Russell 2000 ETF (IWM) closed at a new all-time high.
It’s the first time it’s done that in 969 days – the longest drought ever for small-cap stocks without posting a new high.
Meanwhile, I have people telling me that there are tops everywhere…
That all this winning is unsustainable…
That the bubble is about to pop any minute now…
And that stocks have “come too far too fast.”
I’m sure you’ve noticed these are a lot like the psychotic narratives we heard last year… and the year before that… and the year before that.
Fortunately, around here, we like to stick with the facts and ignore the fairy tales.
Highest Close Ever
Here you have it, folks. They were finally able to do it.
Small-caps are at a new all-time high for the first time since 2021:
One of the things that has kept me bullish and looking to put money to work in equities is the following question:
Is this bull market going to end without the small-cap indexes even breaking out?
My answer has been, “Probably not.” The bull market is most likely not going to end before small-caps get their turn.
Well, now it’s their turn.
New Six-Month Highs vs Large-Caps
Rotation rotation rotation – that’s the lifeblood of a bull market.
After massive underperformance from small-caps, you’re now seeing new six-month highs in small-caps relative to large-caps.
The IWM ETF includes the smallest 2,000 companies in the Russell 3000 Index. The largest 1,000 companies are represented by the iShares Russell 1000 ETF (IWB).
Note that the Russell 3000 represents approximately 98% of all the equities in the United States.
So this is certainly one of my favorite small-cap-to-large-cap gauges.
Here in the black line you can see those new six-month highs as money continues to rotate into smaller-cap stocks:
In blue, you’ll see the small-cap Russell 2000 Index relative to the mega-cap Nasdaq-100 stocks.
This is the most vulnerable trade on Earth right now, with the positioning in the futures market very much skewed in favor of small-caps and away from the Invesco QQQ Trust (QQQ).
It doesn’t mean the Nasdaq needs to fall here in order for that positioning to unwind.
But I do think outperformance from small-caps continues and is likely to persist at least into the end of the year.
Everybody hates the small-caps. That’s the tailwind.
So, what does this mean to me and my portfolio?
It means we’re buying more small-cap stocks.
More specifically, I’m buying two small-caps today before the weekend gets here – one in nuclear, one in insurance, both powered by AI.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs