Small caps are the hottest trade going in the stock market now and they surged another 3% Tuesday

Small-cap
stocks
are
on
a
tear
right
now
as
they
took
the
baton
from
megacap
technology
shares
last
week
to
lead
the
bull
market
on
hopes
interest
rate
cuts
will
broaden
out
the
economic
recovery
to
their
benefit.

The


Russell
2000
index,
the
benchmark
for
the
group,
jumped
3.5%
on
Tuesday,
hitting
its
highest
level
since
January
2022.
It
marked
the
benchmark’s
fifth
time
since
1979
that
it
has
had
a
five-day
streak
of
gains
north
of
1%,
according
to
Bespoke
Investment
Group.

The
small-cap
benchmark
is
up
12.8%
over
the
last
one
month,
triple
the
gains
in
the
S&P
500.

Fundstrat’s
Tom
Lee,

who’s
been
correctly
calling
the
stock
market
for
the
past
few
years,
said
the
rally
in
small
caps
could
last
for
more
than
two
months,
seeing
dramatic
gains
for
this
cohort.

“We
think
this
move
could
be
something
like
10
weeks
and
as
much
as
40%.
I
think
it
is
just
starting,”
Lee,
head
of
research
at
Fundstrat,
said
Monday
on
CNBC’s
“Closing
Bell:
Overtime.”

Investors
are
rotating
into
previously
unloved
corners
of
the
market
as

cooling
inflation
data
last
week
fueled
bets
that
the
Federal
Reserve
could
cut
interest
rates
soon
and
skirt
a
recession.
Small
caps
are
typically
more
sensitive
to
fluctuations
in
the
economy
and
market
sentiment
and
could
see
outsized
benefit
from
falling
rates.

Moreover,
the
group
is
gaining
traction
as
the
“Trump
trade”
among
investors,
seen
as
potential
beneficiary
of
a
win
by
former
President

Donald
Trump
in
November.

While
Trump
does
not
have
detailed
policy
proposals
for
a
second
term,
hiking
tariffs
while
lowering
taxes
and
regulation

could
be
a
boost
for
domestic
stocks,
including
small
caps,
according
to
David
Kostin,
chief
U.S.
equity
strategist
at
Goldman
Sachs.

Trump’s
betting
market
odds
of
winning
the
election
have
steadily
climbed
in
recent
weeks
since
the
debate
against
President

Joe
Biden
in
June
and
his
survival
of
an
assassination
attempt
over
the
weekend.