Francis Hunt
Trading Education, Hunt Volatility Funnel & Capital Preservation
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.comÂ
US small caps are a losing game against investor psychology. They demand time spent understanding concepts no one cares about, only to end in 5% positions sold too early, and net worth stagnates despite good-looking screenshots. Large positions in cheap blue chips are a much better and easier game. x.comÂ
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.comÂ
Small and mid-sized businesses won't do well at current interest rates, so the broadening-out trade into US small caps has failed again, as it did in 2023, 2024 and 2025. Morgan Stanley just downgraded US small caps to neutral from overweight versus large caps. x.comÂ
Bond pressure should weigh on US small caps. IWM is also losing its long-term trend line. x.comÂ
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.comÂ
US small caps look overextended: the Russell 2000 is only 3% off its highs and is full of weak companies that were spared the selloff because they aren't in the Nasdaq 100. Single stocks are whipping around while the S&P 500 stays muted, and the S&P could be 15% lower without anyone thinking it unwarranted. x.comÂ
The Russell 2000's cheapest P/E among the major indices does not make small caps a buy. Once growth and earnings revisions are factored in, it looks like the least attractive index of the group. x.comÂ
US small caps are in a 2021-style mania worth riding up hard, but a downturn will come. Revenue and cash generation have become irrelevant, IPOs are overvalued, pump-and-dumps are everywhere, everyone crowds the same themes and a few companies hold the market up; a wave of SPACs would mark the top. The second half should be volatile. In a large correction, high-beta names will drop regardless of sector, and cash-generative companies with real moats and growth will be safer. x.com x.comÂ
Small caps leading like this only happens when liquidity is everywhere, the equity version of shitcoins pumping near a top. The Russell 2000 is back at new all-time highs and running ahead of the S&P 500. x.comÂ