I am breaking no news here, but small-cap stocks broke out to new all-time highs for the first time in nearly four years, ending one of the index’s longest drawdowns and finally clearing resistance that halted two past rallies. This breakout removes overhead prior high resistance and introduces the potential for renewed bullish sentiment, though similar setups have failed before, so cautious optimism is warranted.
Small Cap Price Index (with small-to-large cap ratio)
A six-month rotation from large-caps to small-caps has helped small cap stocks outperform the S&P 500 by over 5% since April, drawing the attention of market participants. The breakout coincided with the second-best day of relative performance against the S&P 500 this year and the small-to-large ratio reaching a seven-month high, underscoring the momentum shift.
Still, this rally may be just a countertrend move as many investors, scarred by years of small-cap underperformance, remain skeptical. My view is that this next phase is crucial for a bullish sentiment shift. Consolidation of small-cap prices in a stable range, alongside lower volatility, is key to shifting sentiment and encouraging active managers to return after years of avoidance. Shaker Investments is ready to deploy additional capital down the cap spectrum and continues searching for underfollowed and fundamentally strong small companies ripe for price discovery, believing persistent bias creates opportunity when sentiment turns.
The information contained in these materials is as of 09/19/2025 and has been obtained from Bloomberg and various public sources. The article reflects the views of the author and are subject to change based on market or other conditions. It is not intended as investment advice or recommendation, nor is it an offer to sell or a solicitation of an offer to buy any interest in any fund or strategy. Any investment is speculative and involves a high degree of risk, including potential loss of principal. There is no guarantee that the investment objective will be achieved, or that the investment strategies will be profitable. Investments in smaller companies may be riskier, less liquid, more volatile and more vulnerable to economic, market and industry changes than investments in larger, more established companies. Past performance is not indicative of future results.
