Records for SPY and QQQ: Time for Small Cap?

The TDR Three Key Takeaways:

1. Small Cap stocks may gain as interest rate increases slow or stop, presenting opportunities for investors.

2. If interest rates have peaked, cannabis and psychedelic companies could provide an opportunity for investors focused on valuations.

3. The Small Cap Russell 2000 Index price levels at $198 and $199 are critical markers for future small-cap stock performance.

It is time to focus on Small Cap stocks? The S&P 500, represented by the SPY, and the NASDAQ-100, tracked by the QQQ, have reached new all-time highs, drawing attention to the performance of Small Cap stocks and their potential to outshine their large-cap counterparts.

Small Cap stocks are historically more aligned with the domestic economic cycle than large-cap stocks, often creating buying opportunities during economic downturns, especially following the initial steep drop common at the start of recessions. As interest rate hikes pause or decelerate, small-cap stocks typically emerge as market leaders and reach new highs relative to large-cap indexes.

The situation today could echoe the small-cap super cycle from 1998 to 2006, with signs suggesting interest rates may have reached their peak. Attractive valuations across numerous metrics imply that the market has perhaps incorporated the concerns previously held about small-cap stocks. This recalibration may have established a buffer of safety, offering an enticing prospect for investors who prioritize valuation, especially those eyeing the upper-tier spectrum of the small-cap market.

Mitch Hoch’s analysis at The Dales Report Twitter account highlights the critical $198 and $199 price levels for the Russell 2000 Index, indicating the market’s keen interest in these figures. How the index behaves around these price points could shed light on the prevailing mood toward small-cap stocks and what the future might hold for them.

The present market scenario is marked by unprecedented highs for large-cap indices and could potentially signify a turnaround moment for small-cap stocks in sectors like psychedelics, cannabis, and technology, which were previously depressed during the rising interest rate phase and amidst recession fears. Watch the TDR Twitter/X feed for up-to-date ideas based on technical analysis provided by Mitch Hoch.

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