Big tech is cracking but small caps are booming — rotate into small caps
Large-cap tech stocks are teetering on the edge of a major breakdown, but small-cap stocks are having their best year in decades. With the President pushing the Fed to cut interest rates, small companies stand to benefit the most if borrowing costs come down.
Idea
Small caps are on pace for their best first half since 1991 while the S&P 500 sits at a critical breaking point — this is a historic divergence. Trump publicly pressuring the Fed to cut rates is the key catalyst: small companies carry more floating-rate debt and are far more sensitive to borrowing costs than mega-cap tech firms. If rates come down even slightly, small caps get a disproportionate tailwind. Meanwhile, large-cap tech is breaking down. This pairs a bullish small-cap fundamental story with a bearish large-cap technical setup — a textbook rotation environment.