Do you think the rotation into small caps is over at this point? Or do you think there’s still room to go?

Small caps are more sensitive to macro-economics and so recession fears (whether or not an actual recession occurs) are certainly not great for small caps. Additionally if investors are fearful and not greedy, it’s likely that they’ll prefer putting their money into more defensive investments like utilities.

Then again, if the fed is trying to meet their dual mandate and keep the unemployment rate at a reasonable level, they’ll be much more likely to have more rate cuts between now and the end of the year, perhaps as many as 100 bps. This would obviously benefit small cap companies most, as they rely most heavily on loans; after all, it was the possibility of an impending ding rate cut that initiated this rotation in the first place, so a steeper rate cut would likely bode well for small caps.

The Russell 2000 etf (IWM) was trading at 201 when it skyrocketed to a peak of 224 when the rotation to small caps occurred, and has since dropped, losing almost all its gains, and closed on Friday at 209.

Do you think small caps still have much steam between now and the end of the year? Or will the great small cap rotation end with a rotation out of small caps in the near term?