Over the past three months, almost everything has been going up.
No, really. Most stocks have been rallying.
It just doesn’t feel that way if your entire frame of reference is the biggest technology stocks and the so-called “Magnificent 7.”
Those names chose not to participate. And that’s thrown a lot of investors off.
While attention has been fixed on a handful of mega-cap laggards, stocks outside that narrow group, especially in other countries, have been ripping higher.
Europe. China. Latin America. Israel. You name it.
Today, though, we’re staying right here in the United States.
Because despite all the strength overseas, there are plenty of U.S. stocks keeping pace with the rest of the world.
They just aren’t the ones everyone owns.
Since late October, the S&P 500 Information Technology Index is down more than 6%. The Roundhill Magnificent 7 ETF (MAGS) is off more than 4%.
Meanwhile, the Russell 2000 Index is up over 6%. The S&P MidCap 400 is up just as much. And the Dow Jones Select Micro-Cap Index has gained more than 10% over the same period.
That’s not a small difference. That’s massive dispersion.
And it all happened in barely three months.
This is what rotation looks like. Not crashes. Not chaos.
Just capital moving quietly from crowded trades into neglected ones.
Let’s take a closer look at where that money is going and why most investors are missing it.
All the Small Caps Are Winning
The Russell 2000 Index just closed the month at its highest level ever.
That matters.
This index represents roughly two-thirds of the Russell 3000 Index, the broadest measure of U.S. equities we have.
More than 98% of all investable U.S. stocks are captured inside that universe.
So when the Russell 2000 is making new all-time highs, this idea that we have a “breadth problem” simply does not hold up.
Anyone still pushing that narrative is just stuck in the wrong stocks.
The obvious next question is what’s actually driving the strength in small caps.
Is it growth? Is it value?
The answer is “both.”
The Russell 2000 Growth ETF (IWO) just closed the month at new all-time highs.
At the same time, the Russell 2000 Value ETF (IWN) did the exact same thing:
If leadership were coming from only one side of the style spectrum, that would be notable.
But it isn’t.
This is broad strength across the “SMIDs,” our shorthand for small caps and mid caps, basically everything outside of large caps.
And it doesn’t stop there. The Russell Microcap Index, which sits even further down the market-cap ladder, has now posted new all-time highs four months in a row.
That is not defensive behavior.
That is not “risk off.”
That’s what healthy, expanding bull markets actually look like.
Rotation Into “Value”
For the better part of the past 20 years, growth stocks did the heavy lifting in U.S. equities.
Then something changed.
During COVID, small-cap growth stopped outperforming small-cap value.
Since then, value has been carving out a series of higher highs and higher lows, quietly reversing a multi decade trend.
Large-cap growth held on longer. It continued to beat value for a few more years. But that, too, has started to change.
Small-cap value is now trading at its highest level since last spring relative to growth. And large-cap value is beginning to show the same behavior vs large-cap growth.
This isn’t random:
This is the kind of rotation you see in the healthiest bull markets.
Leadership broadens. Crowded trades unwind. Capital flows toward areas no one cared about when everything felt easy.
And investors aren’t positioned for it.
U.S. investors and foreign investors alike are heavily concentrated in U.S. growth stocks. We know this. The data is clear.
The underownership of value is not an accident. It’s a byproduct of a decades-long habit that worked until it didn’t.
That lack of ownership is exactly what fuels moves like this.
Everybody was wrong. And they got caught leaning the same way.
That is not a problem. That’s the market doing its job.
The market is not confused. The market is not irrational.
The market is a machine.
It’s the humans who are getting exposed.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs