Small-cap stocks just posted their best first half in thirty-five years. The Russell 2000 crushed it. Retail traders who bought at the top in 2021 are still underwater.
This is the sharp turnaround everyone waited for. Years of underperformance against large-caps. Finally reversed. The little guys won. Except the little guys who bought the little guys at inflated prices never saw it coming because they were too busy watching TikTok videos about gamma squeezes.
Technical analysts have been calling for small-cap outperformance since 2022. They drew triangles. They spotted divergences. They identified support levels that would "hold this time." The charts said rotation was imminent. The charts were wrong for four straight years until they were right for six months. This is called being a visionary.
The driving force behind the rally does not matter. Could be rate cut expectations. Could be economic resilience. Could be institutional rebalancing. Could be a dartboard. The headline treats "what's driving it" like a mystery worth solving. It is not a mystery. It is noise pretending to be signal so financial journalists can fill column inches between advertisements for wealth management services you cannot afford.
Some guy named Derek bought small-caps in February because his cousin's podcast said mega-cap tech was overvalued. Derek is up eleven percent. Derek thinks he cracked the code. Derek will give it all back by October buying leveraged ETFs he does not understand.
The best first half in thirty-five years means nothing for the second half. It means even less for your portfolio. Congratulations to the five people who timed this perfectly. Condolences to the fifty thousand who will chase it at the peak.
Photo by Jack Plant on Unsplash
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