US small caps are finally breaking out of their long pullback as the market recognizes that yields have likely topped, with inflation and Fed worries easing. x.com 

Falling rates and buying in financials, consumer discretionary and Home Depot make US small caps a very good buy here with high probability. The drawdown exceeds 11%, as it did at the start of the Iran war, and daily RSI and MACD are at similar bottoms. x.com 

Small caps are more sensitive to higher rates, so they will suffer and underperform as yields climb, and today's move is just an oversold bounce. Fed fund futures are at 3.75%, and other Treasury yields are already higher, so the market is effectively there already. Another rate hike may not make much difference on its own, but not every stock can handle this level of rates. x.com 

A seasonal bottom ahead of maximum seasonal bullishness favors US small caps now. Stock Traders Almanac says the Russell 2000 is down 11% from its August 14 high and expects small caps to bottom in mid-to-late October before rallying into year-end. x.com 

US small caps stand to gain most as a liquidity regime shift begins. Long-dated Treasuries look to be printing a final bottom, and if yields reverse lower from below 4.8%, better liquidity expectations would support risk assets on cooling inflation, continued earnings and eventual Fed cuts. With SpaceX, new Fed leadership and midterms ahead, yields look set to fall, letting speculative assets catch up in a Goldilocks phase or end-cycle melt-up. Weakening earnings would make it a late-cycle trap. … Show more

High interest rates are hurting US small caps. The Russell 2000 is retesting its May lows even while the Dow is up and the S&P 500 is only slightly lower. x.com 

US small caps are set to outperform as capital rotates down the cap structure, as it does when a bull market broadens. After years of lagging megacaps, small caps historically run hardest in the back half of a bull, once megacap leaders are extended. Breadth is widening, with over 30% of S&P 500 members beating the index in 2025, the best since 2021. The Fed is easing into strength, and rate cuts that lower discount rates and cheapen financing especially help small caps and long-duration growth. … Show more

US stocks benefit when rates rise with growth because earnings outpace the drag from higher discount rates. Such periods have historically been very bullish, unlike inflation-led rate rises amid slowing growth. Since fall 2025 the 10-year yield rose from 4.1% to 5.1% while nominal GDP growth accelerated to 6.6%, faster than rates. Being long offers better risk/reward; high oil prices due to the war are the remaining inflation pressure, and an end to the war would improve the setup further. x.com 

Small caps, housing stocks and unprofitable tech that ran on rate-cut hopes face a sharp repricing, as odds of a rate hike at the Fed's July 29 meeting tripled in a week. Oil surged near $100 after Houthi attacks on Saudi tankers, new global tariffs lifted inflation expectations and the 10-year yield hit 4.71%. A Wells Fargo strategist said the Fed may need to hike more and faster than expected. With consumers already fragile, a hike would reprice small caps overnight. x.com 

Small caps have the best chart of the three major US indexes, and money is flowing into the financials and biotech names the Russell 2000 is full of. The position was started on the post-FOMC flush and will be managed against the 9-day EMA, with the risk of exiting if Fed chair Warsh's press conference goes the wrong way. x.com