Futures indicate a positive start for equities, with the S&P 500 nearing a record high.
Despite recent calm, analysts detect a significant shift in market sentiment. Greg Boutle of BNP Paribas notes that last Thursday’s softer-than-expected consumer price index report and the resulting dip in Treasury yields triggered a major rally in overlooked market segments. Small-cap stocks gained favor, while Big Tech faced heavy selling.
Though this trend partially reversed on Friday, the key question is whether small caps will maintain their upward momentum.
Tom Lee of Fundstrat is optimistic. He believes small caps, tracked by the iShares Russell 2000 ETF (IWM), present the “most compelling near-term investment case,” predicting a potential 50% gain in 2024. With small caps currently up only 6%, there is significant growth potential. Lee attributes this to the low June CPI, which he believes signals continued small-cap rallies.
Lee’s optimism is based on five key factors:
“We see the conditions for a strong rally in IWM. Mark Newton, head of technical strategy, believes a confirming ‘breakout’ of small caps could happen this week,” concludes Lee.
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