US small caps are drawing a rotation that signals the market is quietly going more risk-on. When the Nasdaq and S&P 500 printed their first red daily candles after 14 straight green days, the Russell 2000 still closed higher, showing money moving from large caps into small caps rather than leaving the market. 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 

Rising yields are winning over the AI benefit for small-company stocks for now. Scott Bessent cited record tax ID applications from small AI companies as evidence that AI enables lean startups, consistent with the earlier catch-up case, but small-company shares have entered a correction under rate pressure. x.com 

US large-cap equities do not look like a bubble at current forward valuations. The S&P 500 forward P/E is below both its five- and ten-year averages, while tech and momentum have suffered their worst five-month decline by far. 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 

Favoring the Nasdaq 100 over small caps remains right because the digital economy has changed market structure, and AI is accelerating that shift. Fading QQQ against IWM has been the widowmaker trade in US equities since the iPhone launch. The Magnificent 7 are breaking out to new all-time highs as AI enters a consumer-agent stage, while small caps suffer from fears over rates and oil. Breadth warnings are everywhere, but the structure has changed: adapt or die. x.com 

The cap-weighted S&P 500 remains exposed to tech and AI unwinding because technology still weighs more than at its 2000 peak. Its tech weight has slipped from a record 40% two weeks ago to 37.6%, but the 2000 peak was about 34%, making further unwinding most likely. x.com 

US small caps look as bullish as they possibly could after an insanely clean breakout and retest of a five-year accumulation range, a setup that can run for years, not months. As the highest-risk equity index, the Russell 2000 is a barometer for high-risk assets broadly, and US liquidity is breaking out from its lows at the same time. This is not a bear market; everything should go a lot higher this year. x.com 

Growth stocks should keep outperforming small caps because rising rates now hurt small caps far more. Large-cap and AI-linked growth companies are cash-rich and lightly financed, while about a third of Russell 2000 debt is floating-rate versus roughly 6% for the S&P 500. As hike expectations returned, small caps' lead over the S&P 500 shrank from about 11 points in June to about 2, and IWM tracks long bonds far more than QQQ. The ARKK/IWM ratio has reclaimed its rising 20-month Bollinger basis. … Show more

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