NEWS
An Unprecedented Market Rally

It’s officially small-cap summer, with the Russell 2000 index surging over the last week and leaving its large-cap counterparts in the dust. Market breadth is expanding across the board, and traders are finding new setups in a variety of sectors and market-cap segments. Let’s see what you missed. 👀

Today's issue covers context on the small-cap surge, a recap of bank earnings, and a software company tied to the financial sector.📰

Here's today's heat map:

10 of 11 sectors closed green. Industrials (+2.49%) led, & technology (-0.33%) lagged. 💚

U.S. retail sales, excluding automotive, rose 0.40% MoM in June, marking its largest increase since April 2023. The data bucked the recent slowdown in consumption growth as a cooling labor market and economy weighed on consumer confidence. 🛍️

The International Monetary Fund (IMF) warned that slower disinflation could result in ratings staying higher for “even longer” while raising its 2025 growth estimate to 3.30%. 🔺

The NAHB housing market index fell to its lowest level of the year as higher mortgage rates weighed on homebuilder confidence. Meanwhile, homebuilding stocks have rebounded back toward all-time highs as the market prices in a 100% chance of a September rate cut. 🏘️

Activist investor Starboard Value unveiled a more than 6.50% stake in Match Group, citing product innovation and margin improvement opportunities. Shares rose 7% but remain 80% off their 2021 highs. 📲

UnitedHealth shares rose 6% after its earnings and revenue topped expectations. Analysts were concerned about margin pressures due to the higher medical spending since the end of the pandemic, but management has seemingly managed expectations well enough to get back on track. 📊

Five Below shares fell 9% after the discount retailer said its CEO is stepping down “to pursue other interests.” The company also posted weak second-quarter earnings and revenue guidance. 🏬

Shopify rebounded following a Bank of America upgrade from neutral to buy, citing revenue growth and healthy margin expansion. 🛒

EPAM Systems rose 5% after Jeffries upgraded the software engineering stock from hold to buy, citing valuation and an underappreciated AI opportunity. 🤖

And BuzzFeed shares popped and dropped after the Pulte family revealed an activist stake, supporting Vivek Ramaswamy’s proposed changes. 💰

Other active symbols:$GME (+5.70%), $SOFI (+5.73%), $AEHR (+14.21%), $BYND (+11.79%), $HUMA (+4.64%), and $RIOT (+10.63%). 🔥

Here are the closing prices: 

STOCKS
It’s Officially Small-Cap Summer

With market participants now pricing in a 100% chance of a Fed rate cut by September, rate-sensitive sectors like small-cap stocks, are catching fire. 🔥

Why small-caps specifically? Companies with under a $2 billion market cap rely heavily on debt (specifically floating-rate debt) to fund growth, so higher interest rates and tighter lending standards impact them most.

But now, with rates potentially coming down, market participants are looking to diversify out of big tech and other winners into small-cap catchup plays.

So, how big has the small-cap move been since last week? Steve Deppe on Twitter said the 9.94% outperformance vs. the S&P 500 over the last four days was the largest spread on record. The last time it happened was in early 2020. 🫨

Bespoke offered another perspective, showing that the Russell 2000 closed 4.4 standard deviations above its 50-day moving average. A record for all of the major U.S. indexes. 🤯

So where does this move leave the Russell 2000? The ETF shows prices blasting through former support/resistance near 207 quickly and approaching its next major resistance level near 235.📈

Technical analysts say that prices are very stretched in the short-term but that any weakness towards 207 (or the 200-day moving average near 195) would likely be bought as investors bet on longer-term strength.

Retail investors seemed excited about the move, with Stocktwits sentiment pushing into “extremely bullish” territory toward the top of its YTD range.

Time will tell if this is another headfake or the start of a new trend in small-caps vs. large-caps. But for now, it appears “small-cap summer” is officially on. 😎