Good afternoon, everybody. JD here with your Rational Trader market analysis daily.
In today’s video, I want to talk about something that caught my eye: small-cap stocks. More specifically, why they didn’t do what I expected them to do.
Small Caps vs. Falling Yields
The day started with the kind of move that usually supports small caps — a collapse in the 10-year Treasury yield. When yields drop, that generally means lower borrowing costs for smaller companies. And for small-cap stocks — which often rely more heavily on financing — that’s usually bullish.
But that rally didn’t happen. The Russell 2000 (RUT) closed fractionally lower, even as the S&P 500 ticked up slightly.
That divergence matters. It suggests something deeper is at play.
The Glide Path and Where It Stalls
We’ve been operating on a glide path toward retesting the market highs — and it’s been working. The Nasdaq and S&P 500 are both comfortably above their 200-day moving averages.
But not small caps.
On the Russell chart, you’ll see that the 200-day is still a ceiling — not yet a floor. That tells me small caps haven’t joined the party.
Why the Fed Still Doesn’t Get It
The market also reacted to some soft economic data: the ISM Services Index came in under 50, and the ADP payrolls number missed expectations.
Now, to me, that should be a wake-up call for the Fed. I’ve said before — and I’ll say again — waiting for the economy to break before you steer the ship is a mistake.
The U.S. economy is the Titanic. If you wait until the iceberg hits, you’ve baked in 3–6 months of unnecessary pain.
Watching for the Next Move
So what am I watching?
Small caps. If investors catch on to the opportunity here — especially with rates dropping — that’s where the next glide path might emerge.
But I need to see participation broaden. Right now, we’re seeing momentum, not strength.
A real rally needs breadth — lots of stocks participating. And as I said yesterday, if Wall Street starts backing up Main Street here… things could get interesting fast.
That’s all for today’s Rational Trader update. We’ll be back tomorrow with more.
Talk soon,
JD
The Rational Trader
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