Big-Cap Technology Regains Its Leadership as Small-Caps Struggle
Jerome Powell speaks Wednesday and could start to prepare the market for a less dovish Fed.
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The primary market theme since the election has been rotation into small stocks. The Russell 2000 IWM has increased about 7% in the last month, while the Nasdaq 100 QQQ is up about 5%. Smaller-cap stocks peaked about a week ago, and the Nasdaq 100 is jumping higher Wednesday morning as Salesforce CRM, Meta Platforms META, Microsoft MSFT, and others have reclaimed their roles as market leaders.
Big-cap technology stocks aren’t great values, but they still have the reputation as safe places to park money as the market becomes more technically extended. They have been outperforming for a very long time, and it is easy to believe that they will continue to do so, especially when a name like Salesforce puts up good numbers and sees price target increases from dozens of analysts.
The primary driving force for the sustained upside is optimism that Trump policies will deliver strong growth. There is some concern that tariffs and other policies will create inflationary pressures, but so far, that has been outweighed by growth optimism.
Fed Chair Jerome Powell will be speaking on Wednesday, and the market will listen closely to any hints about rate cuts. The odds of a quarter-point cut later this month have been rising, although there have been signs that the Fed is trying to lower expectations about cuts. Powell could shake things up if he hints at some hawkishness.
Market participants will also be looking ahead to the November jobs report on Friday. Surprise numbers there could also shake up rate-cut expectations, but it is going to take something very dramatic to dampen the economic optimism that has been building since the election.
On Wednesday morning, it looks like we have returned to a narrower market that is led by big-cap technology. When this happens, the indexes hide the weak action under the surface and create FOMO that drives more big-cap buying.
It is a tough environment for stock pickers as there are pullbacks in the hottest small-cap names, and many big-caps don’t offer good entry points.
At the time of publication Rev Shark had no positions in any securities mentioned.
