Trump backs off Fed and inflation hope emerges — small caps ready to rip on rate
Thesis
Small caps are already on pace for their best first half since 1991 — they thrive when rate-cut expectations build because their borrowing costs are more sensitive to policy shifts. Trump easing pressure on Fed Chair Warsh, combined with Goolsbee seeing 'glimmers of hope' in inflation data, suggests the political pressure for rate cuts may actually translate into a more accommodative Fed. Small caps don't need rates to actually drop — they just need the market to believe cuts are coming. The combination of strong small-cap momentum plus a friendlier Fed signal is a tailwind that could extend the rally.
Strategy approach
Build a momentum strategy on D1 timeframe. Entry: long IWM when it closes at a 20-day high AND the 10-year Treasury yield (TNX) has dropped 10 basis points over the prior 5 sessions. Exit: IWM closes below its 20-day EMA, or 30 trading day max hold. Filter: only enter if IWM's 50-day SMA slope is positive.