Near-term trends are bullish for SPX, and I anticipate a sharp rally to finish the month of October after an interesting period of sector rotation in recent weeks. Industrials, Consumer Discretionary, and Small-cap stocks have begun to show notable strength this week, while Financials appear close to turning higher as well. Meanwhile, “Magnificent 7” haven’t been so magnificent over the last month, and look more like the “Lag 7” than the “Mag 7” with notable underperformance lately out of AMZN -0.01% , NFLX 0.01% , META 1.66% , MSFT -1.58% , while even NVDA has begun to lose momentum. Meanwhile, IWM has just successfully broken out above SPY, going back since 2021, which bodes well for continued near-term outperformance by Small-caps. Overall, the combination of time-based indicators and Elliott-wave structure seems to project to late October. Bottom line, Treasuries, Equities, and Cryptocurrencies still have a good likelihood of pushing higher into late October, and until trends turn down, I’m skeptical that “Tariff talk” will do much to derail this rally.
No change from yesterday’s thinking. In the short run, the rebound favors market bulls, and I suspect that a rally back to new highs is probable.
I don’t suspect that 6555 will be broken in SPX over the next couple of weeks, and a coming push back to 6800 and potentially over this level looks possible between now and late October.
What’s particularly more interesting is the extent to which Small-caps have really begun to “kick into gear” and have decisively begun to extend their lead at All-time highs after some churning in recent weeks.
Small-cap IWM has actually been outperforming the “Mag 7” since late September, and I expect that IWM likely outperforms SPY into year-end.
Near-term targets for IWM 1.44% lie near $2600-$2650 initially, before some consolidation occurs in November. For now, it’s right to favor Small-cap exposure, as IWM 1.44% has been able to outperform both Equal-weighted and cap-weighted SPX in the last few weeks.
Ishares Russell 2000 ETF
IWM has just broken out vs. SPY going back since 2021
The era of Small-cap outperformance looks to officially be underway, as IWM 1.44% has decisively broken out vs. SPY 0.35% this week.
As shown below, IWM 1.44% has exceeded its four-year downtrend line, and should drive this higher between now and Year-end.
While IWM has been decisively outperforming the Equal-weighted S&P 500 since April, its outperformance vs. the tech-heavy SPY 0.35% is a new development.
Overall, this coincides with the FOMC starting its rate-cutting plan, and 3-4 cuts in the Federal funds rate are anticipated between now and next Fall.
Bottom line, this bodes well for Small-cap outperformance, and small-caps are actually more attractive than Mid-caps at this time, as the Mid-cap 400 ETF MDY 0.65% has failed to break out to new highs like what’s happened in IWM 1.44% .
Kudos to Fundstrat’s own founder and Head of Research, Tom Lee, for “sticking to his guns” and advocating Small-cap exposure prior to most Strategists on Wall Street who remained steadfastly bearish.
IWM/SPY
“Mag 7 has become the “Lag 7” but for how long?
For those who are fans of AMZN -0.01% , NFLX 0.01% , MSFT -1.58% , META 1.66% , and even NVDA -1.20% , it’s noticeable that this area within Technology has begun to slow down in the last month.
“Mag 7” certainly is not keeping up with many Semiconductor names, nor many parts of Data Storage (STX 10.68% , WDC 5.80% , MU 9.11% , for example).
While this doesn’t suggest that Mag 7 won’t work in the weeks ahead, it does signal that some patience and selectivity are needed in this group before expecting immediate outperformance.
Interestingly enough, the rotation within the group is also fascinating, as former laggards like TSLA 3.62% now look more compelling technically for a period of 3-4 months than stocks like AMZN -0.01% , NFLX 0.01% , or even META 1.66% .
I like the risk/reward of “Mag 7” here (shown as the Roundhill Magnificent 7 ETF) and expect to see a push up to $68 into late October.
Thus, this recent consolidation likely can be resolved by a push higher. However, I am skeptical that “Mag 7” moves higher throughout November without some additional consolidation.
Thus, it should pay to be selective within this group in the weeks and months ahead. However, at present, it looks like a good risk/reward technically, and the uptrend in MAGS 0.76% has not been broken in a way to suggest weakness.
Roundhill Magnificent Seven ETF – MAGS
Utilities continue to show excellent relative strength and have outperformed the Tech-heavy SPY since September
As might not have been expected during a resilient Stock market and a Technology sector that has outperformed, the Utilities sector has actually done even better since early September.
As shown below, the XLU 0.02% has shown outsized performance vs. SPY 0.35% over the last month, and on a one-month basis, XLU 0.02% has returned +8.39% through 10/14/25, far outweighing the ^SPX’s +0.84% returns since 9/14/25.
Moreover, when looking at the Equal-weighted Utilities sector by Invesco (RYU 0.19% ), this sector has outperformed all other sectors on a 1-week, one-month, three-month, and Year-to-Date basis.
That’s an extraordinary development, coming at a time when other sectors, which were thought to be defensive, like Consumer Staples, for instance, have underperformed. As we know, the Utilities sector is a very different sector these days than the Utilities sector from twenty years ago.
Utilities like CEG 0.33% , NEE 0.43% , AES 5.88% , XEL -0.49% , SRE -0.10% , EE 2.77% , and EXC -1.06% are all higher by more than 10% in the last month. Near-term, this outperformance could be nearing a temporary peak into next week as the broader market (including much of Technology, which has lagged) might kick into gear in a bigger fashion.
Yet, Utilities remains a technical Overweight based on its structure, bullish technical patterns, and outstanding relative performance. For those who might fear some turbulence between now and mid-November, I expect that Utilities likely can still show solid outperformance, and this remains an Overweight technically.
XLU/SPY
