The S&P 500 has seen a summer characterized by buying dips and selling rips, with the VIX at low levels and a decrease in speculative call-buying in the tech sector. This has led traders to look for direction from tech stocks, which have dominated the market.
However, small-cap stocks are gaining traction, with the Russell 2000 index up 20% year-to-date, slightly outperforming the Nasdaq-100's 18% increase. A notable options trade in the Russell 2000 IWM ETF involved a trader investing nearly $20 million in a strangle position, which profits from significant price movements in either direction, favoring a downside move.
This suggests a potential shift in market sentiment, as Eric Kuby, chief investment officer at North Star Investment Management, noted that investors may be seeking alternatives to mega-cap tech stocks, with forecasts indicating over 20% earnings growth for small caps.
The Russell 2000's impressive 21% rally in the second quarter marks its strongest performance since 2020, despite rising Treasury yields, which typically challenge small-cap performance. Additionally, regional banks within the KRE ETF have risen 15% this year, contrasting sharply with the S&P 500 financial sector's modest 1% gain