Small-cap stocks lagging behind megacap tech rally

Small-cap stocks are playing catch up with the megacap tech rally. Yahoo Finance markets reporter Jared Blikre breaks down the market movement.

Video transcript

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BRAD SMITH: Welcome back. As the S&P 500 continues to swell on the back of big tech, the small-cap Russell 200 index is playing catch up. Well, the Russell 2000, we should note, is there on your screen. Yahoo Finance's Jared Blikre, he's got more. He joins us now from the floor of the New York Stock Exchange. Hey, Jared.

JARED BLIKRE: Hey, Brad. I know the trend has been toward fewer and fewer tickers and listings over time, but if we ever get to the Russell 200, I'm going to have to do something drastic. I do want to talk about the small-caps because they have perked up in a big way, not only yesterday but it started last Friday. That's when we had the nonfarm payrolls beat. Some would call it a Goldilocks report. I don't know about that.

But since then, we've seen risk markets explode to the upside and in a very important and market differentiate-- different way than we saw earlier, which is the Dow is leading, we've had small caps leading, and we've had the NASDAQ severely lagging. I went back in time-- but I'm going to be writing about this in the Morning Brief for tomorrow.

I went back in time and looked at the instances when we've seen this kind of outperformance by small caps on a very short-term basis, and it has not happened since late 2020. You have to go back to the election. That was when Biden was elected and we saw that huge infrastructure play. Everybody got excited about that.

So is this part of a new trend? Difficult to say. But small-caps' positioning is very, very much short among the futures crowd. The CTAs-- Commodity Trading Advisors-- these guys are systematic and they react to price. And small-caps, I got to tell you, if they can explode to the upside just a little bit more, you're going to see a huge, huge short covering rally. So I think that's a potential. This isn't a long-term call or anything but just a potential.

One thing that could trip it up is the US dollar index. Small-caps in general do not like $1 turning higher. We just saw the Turkish lira hit a fresh record high against the dollar, which means that the dollar is strengthening. So all of that put together could put a little crimp on the action, but I'm definitely going to be watching the small-caps over the next few days, guys.

JULIE HYMAN: Yeah, it's a hot topic right now. Thanks a lot, Jared. Appreciate it.