It’s been a wild ride since last week, with the biggest spike in volatility since the “Liberation Day” lows.
There’s finally a decent list of bearish evidence to fret over— from turbulence in high yield and a surge in credit spreads, to a rebounding dollar, and weakness in real economy stocks like homebuilders and banks.
But this next chart is so critical that we can almost forget everything else.
Here’s a clean and simple cheat code for the coming days and weeks: It’s all about small caps.
In other words…
Is this the biggest breakout in history for the Small Cap Russell 2000? Or is it an epic fail?
While the broader market has been hit with its first real selloff since April, the Russell 2000 is ripping to fresh all-time highs as if there’s nothing to see here…
Let me try that again…
The smallest and riskiest stocks in the market are breaking out of a massive base amid this volatility.
The S&P 500 and the Nasdaq 100 are still staring up at their recent all-time highs, but the Russell 2000 isn’t waiting around for the big boys to catch their breath.
Smalls are leading now, and that type of offensive leadership is one of the healthiest messages the tape can send.
The same folks who complained about the market being too thin will now complain about the underperformance from the biggest and best stocks. You just can’t please everyone.
But as long as this breakout in the Russell 2000 is the real deal, bulls can be happy, because that means it’s back to rally mode.
Maybe it’s not the end of the bull market… It’s just time to call some new plays.
