S&P 500 and Nasdaq Give Way as Small Caps Advance Array ( [cookie] => 2ff80f-78852f-21e3c4-63ab62-91062d [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 129182 [reason] => Usage under limits [method] => ) 1 and can accesss 1
Our Views

- We believe this is the “Summer of Small-caps”, with a sizable rally underway that will exceed the Oct to Dec ’23 gain of +27%. This rally, we believe, could reach +40% over the next 10 weeks.
- The primary driver, in our view, is the astonishingly low June CPI (+0.06% Core CPI MoM) that put the probability of a Fed rate cut (as implied by Fed Funds futures trading) in an upcoming meeting to >80% and gave the green light for small-caps to rally. This is the first time since 2019 that a near-term FOMC meeting has a probability of a rate cut of >80%.
- Recall that the +27% Russell 2000 rally from October to December 2023 was catalyzed by a Fed “pause” as the Fed saw inflation as largely normalizing. Even without a near-term Fed cut expectation at the time, merely the fact the Fed no longer was panicked about bringing down inflation at all costs was enough of a catalyst.
- Small-caps have been even more reviled in 2024, seeing a significant de-rating of P/E multiples with the median P/E (2025) now at 11X versus 16.5X for S&P 500, despite median EPS growth +18% versus +11%. So, the starting point for a rally is arguably at an even better place.

- Overall, my expectation of a post-expiration selloff looks to have gotten underway earlier than expected.
- US equity indices have now sold off for five of the last seven trading days, yet remain within established uptrends from mid-April lows. While Technology bore the brunt of this week’s selling, the broader market held up much better.
- The US Dollar and yields are both headed lower and should eventually prove bullish for emerging markets and Commodities.
- Breadth levels have improved markedly and there looks to be solid evidence of the “great rotation” getting underway, so I expect this deterioration to prove short-lived.
- Bottom line, I expect this deterioration to prove short-lived and buyable, likely until early next week before turning back higher.

- Catalyst Watch – The political tailwinds for crypto have intensified following the attempted assassination of former President Trump. He is scheduled to speak next week at the Bitcoin Conference. While he will likely reiterate the GOP’s stated platform, there are rumors reported in the press about a potential announcement regarding a strategic BTC reserve—something to keep an eye on.
- A strong push to devalue the dollar for onshoring purposes, whether realized or not, could bolster the investment case for a monetary hedge like Bitcoin.
- There is compelling evidence that the broader market is shifting its risk-taking appetite, indicated by a large uptick in USDT market cap this week.
- Crypto Equities – This week we are adding Semler Scientific (SMLR) to our crypto equities basket. Despite the industry and company-specific risks, we believe it is on a path to becoming a small-cap MSTR.
- Core Strategy – We acknowledge the near-term risk to the market from the ongoing transfer of BTC out of the Mt. Gox estate, which could result in short-lived downside volatility. However, with inflation continuing to fall, economic data remaining non-recessionary, and political tailwinds intensifying, we remain fully allocated.

- The Republican National Convention has ended, but Presidential politics will likely stay in the spotlight this weekend.
- The convention showed that the GOP has completed its transformation into the party of Donald Trump and his brand of populism.
- President Biden remains a candidate for re-election, but rumors that he will soon step aside are rampant.
Wall Street Debrief — Weekly Roundup
Key Takeaways
- The S&P 500 retreated 1.97% to 5,505.00 this week. The Nasdaq sank 3.65% to 17,726.94, while Bitcoin was at 67,359.20 on Friday late afternoon, up about 10.8% from Monday levels.
- Fundstrat Head of Research Tom Lee sees signs that a “Summer of Small-Caps” is on the horizon.
- Meanwhile, Head of Technical Strategy Mark Newton suggests that the “Great Rotation” out of large-cap Tech stocks has begun.
“We all love to win, but how many people love to train?” ― Mark Spitz, Olympic swimmer and gold medalist
Good evening,
This week illustrated the extent to which large-cap Technology stocks affect broader indices such as the S&P 500 and the Nasdaq. Tech stocks – particularly semiconductor stocks – retreated this week after negative news from both sides of the political aisle. The Biden administration discussed the possibility of tougher restrictions on the sales of chip technology to China, while former President Donald Trump cast doubts on U.S. military support for Taiwan should China attempt an invasion. The subsequent decline in Tech stocks caused the S&P 500 and Nasdaq to stumble.
Still, we saw promising moves from non-Tech sectors, prompting Fundstrat Head of Technology Mark Newton to tell us during our weekly research huddle that “my thinking is that the ‘Great Rotation’ has begun.” He noted that “Large-cap Tech has stalled out a bit, and this week we saw one of the largest daily declines in the Nasdaq in two years.” However, despite the declines in the broader indices, Newton said, “I'm finding it difficult to get all that negative on the market just because the breadth has actually gotten so good in recent weeks. I think it's actually a very encouraging sign that we've seen such strength out of many of the lagging sectors, for example in Biotech, regional banks, and Small-caps.”
Fundstrat Head of Research Tom Lee also noticed the move in Small-caps – something he had been anticipating. To Lee, this was largely the result of the astonishingly low June CPI data released during the previous week. This prompted Federal Reserve officials to hint at more dovish outlooks this week:
- Fed Governor Christopher Waller described June CPI as “the second month of very good news”, noting that, in his opinion, “the time to lower the policy rate is drawing closer.”
- The New York Fed’s John Williams told the Wall Street Journal this week that data from the past three months “seems to be getting us closer to the disinflationary trend that we’re looking for [...] We are seeing a broad-based disinflation.”
- Fed Chair Jerome Powell told the audience at the Economic Club of Washington that, “We’ve had three better readings, and if you average them, that’s a pretty good pace” that "add[s] somewhat to [the Fed’s] confidence" of inflation approaching the central bank’s desired target.
Fundstrat Head of Data Science “Tireless Ken” Xuan said that, in his view, “we’re seeing the Fed’s tone start to shift toward cutting.” At our weekly huddle, Xuan reminded us that “this is how the Fed works” – preferring not to shock the market with sudden policy announcements. Tireless Ken also asserted that the Fed’s Beige Book this week showed signs of a slower economy in more districts and regions, arguably “adding more color to the ‘Fed cut’ narrative.”
All of this has helped drive the probability of a Fed rate cut in a near-term FOMC meeting (as implied by Fed Funds futures trading) to 98% as of Friday, a significant increase from the 70% we saw before the release of June CPI. As Lee pointed out, “this is the first time since 2019 in which the probability of a rate cut at a near-term future FOMC meeting has risen above the 80% level,” and it is part of why he sees the current Small-caps rally likely continuing. “This rally, we believe, could reach 40% over the next 10 weeks,” he told us.
How does Lee see the “Summer of Small-caps” (as he calls it) potentially unfolding? “We are only one week into this rally, but it is tracking very closely to the October to December 2023 small-cap rally,” he pointed out. Both rallies began with an initial surge, followed by a slight decline. In both rallies, this correction was marked by similar valuation (as measured by small cap P/E relative to the S&P 500). In late 2023, the correction was followed by a larger advance. Lee believes recent history could repeat itself. The comparison of Small-cap performance between late 2023 and now is shown in our Chart of the Week:
Crowdstrike
Shares of CrowdStrike (CRWD -7.27% ), a Granny Shot stock, sank more than 11% on Friday in response to news that what appears to have been a routine – but clearly problematic – update from the cybersecurity firm caused millions of machines running Microsoft software to crash. Major companies and institutions in virtually every industry, sector, and geography were affected, with frustrated travelers stranded in airports serving as perhaps the most visible illustration of the outage’s impact. (Some 3,500 flights were grounded around the world due to the outage.) Trading operations at financial institutions around the world were also disrupted, though the London Stock Exchange appears to have been the only major exchange affected.
Although some users were able to get up and running again shortly, the actual fix could take weeks, because, in many cases, an IT administrator will need to manually address issues on each affected machine. The extent of the impact of what many are calling the worst IT outage in history is unclear. In addition to the obvious criticisms sure to be leveled at Crowdstrike, others have pointed out potential consequences for Microsoft (MSFT -4.15% ) – despite the company not being directly at fault; for the global supply chain, including air- and ocean-cargo shipping; and in banking, with disruptions in the next payroll cycle a distinct possibility. The S&P 500, Nasdaq, and Dow all declined on Friday.
Elsewhere
China’s economy missed expectations in 2Q2024, growing 4.7% as the country’s property crisis, local-government debt, and high youth unemployment continued to weigh on both consumer spending and GDP.
The Wall Street Journal’s Evan Gershkovich was sentenced to 16 years in a high-security Russian prison after what the Journal called a “disgraceful, sham conviction”. Gershkovich, first detained in early 2023, was accused of spying on behalf of the CIA – charges that the U.S. government has unequivocally denied, and that Jay Conti, general counsel for WSJ publisher Dow Jones, has described as “bogus charges that are completely trumped up.”
HSBC named its next CEO, Georges Elhedery, effective September 2, 2024. The appointment comes after a surprise retirement announced in April by current CEO Noel Quinn. Elhedery is an HSBC veteran, now serving as CFO and having previously run the bank’s global markets business.
Headline inflation in the U.K. remained steady at the target rate of 2% in June. Core inflation also remained unchanged from its May levels, coming in at 3.5%. The macroeconomic news incorporates surging hotel prices possibly driven by a series of 10 Taylor Swift concerts, though those were offset by declines in clothing and food prices.
Amazon said this year’s Prime Day two-day event was its “biggest ever” in terms of revenue, without disclosing details. Independently, Adobe Analytics reported that during the two-day event, online sales hit $14.2 billion, an 11% increase from 2023. Online purchases in general tend to surge during Prime Day, as other retailers also hold sales to compete.
And finally: The Tuscan estate and former residence of Lisa del Giocondo, the noblewoman depicted in Leonardo da Vinci’s Mona Lisa, is on the market. Villa Antinori, a 43,000 square-foot residence on a 67-acre estate just three miles from Florence’s city center, has been owned by del Giocondo’s family since 1498. The family is asking EUR 18 million (US$19.66 million).
Important Events
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FS Insight Media
Stock List Performance
Strategy | YTD | YTD vs S&P 500 | Inception vs S&P 500 | |
Granny Shots
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+15.72%
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+0.31%
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+108.92%
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View
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Upticks
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+20.48%
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+5.07%
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+13.60%
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View
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