Risk On! Why Small Caps Just Crushed the Market

Fresh news and strategies for traders. SPY Trader episode #1441. The market experienced a stellar week, posting its best gains since midyear, driven by mounting expectations of an imminent Federal Reserve rate cut following weaker economic data and cooling inflation signals. The rally was led by Small Caps (Russell 2000 up 5.52%), signaling a high 'riskon' appetite among investors. Consumer Discretionary and Technology sectors surged. The episode discusses tactical recommendations, including increasing exposure to Growth (QQQ) and Small/Mid Caps (VTI) while maintaining core diversification (SPY).

Episode Transcript

(00:00):
Welcome back to Spy Trader , I'm your host , Barry Bullish .
It's 5 am on Saturday , November 29th , 2025 , Pacific time .
We are wrapping up what was an absolutely stellar week for the market .
Investors went full ' riskon , ' driving the major indices to their best performance since midyear , fueled primarily by mounting expectations of an imminent Federal Reserve rate cut .

(00:25):
This dovish pivot has been a huge boost to risk appetite .
Let's hit the numbers .
The market experienced a strong upward surge , with the S&P 500 posting its best weekly gain since June , soaring between 3.73% and 4.47% .
The Nasdaq Composite led the charge with a huge 4.91% jump , benefiting heavily from optimism around technology and AI .

(00:55):
Crucially , the Russell 2000 , representing smallcaps , crushed everyone , gaining 5.52% , signaling heightened investor risktaking .
What drove this ?
The bond market smells a rate cut .
We saw weakerthanexpected macroeconomic reports that reinforced this expectation .

(01:16):
Yields on the benchmark 10year U.S.
Treasury note fell significantly .
Additionally , cooling inflation signals , like the Core Producer Price Index rising less than anticipated , and slowing consumer spending reflected in the smallerthanexpected increase in September retail sales , were interpreted by the market as green lights for the Fed to ease policy soon .

(01:42):
This led to a clear rotation .
Consumer Discretionary was the top performing sector for the week , gaining 5.33% , boosted by optimism over Black Friday and Cyber Monday sales .
Communication Services wasn't far behind , up 4.59% , thanks to its concentration of largecap growth companies .

(02:04):
Individually , we saw massive retail strength , with Kohl's surging over 56% for the week .
In tech , Intel jumped more than 10% on Friday on rumors it could become a foundry supplier for Apple processors , and memorychip maker Sandisk also jumped following its debut in the S&P 500 index .

(02:26):
The only signs of profittaking were in giants like Nvidia , which slipped on Friday as investors reassessed its high valuation , and Eli Lilly , whose shares fell 2.6% for the day .
So , what do we do next ?

The signal is clear (02:40):
rates are likely coming down , favoring growth and risk .
Our recommendation is a tactical tilt toward those ratesensitive areas .
First , increase your Growth and Tech Exposure .
Falling interest rates make the longterm earnings of highmultiple companies more valuable .
A great instrument here is the Invesco QQQ Trust , or QQQ , which provides concentrated exposure to growth companies .

(03:08):
Second , capture the broadening rally by targeting SmallCap and MidCap .
The Russell 2000's strong outperformance is a major signal .
You can capture this efficiently within a diversified structure using the Vanguard Total Stock Market ETF , VTI , which covers large , mid , and small companies .
Third , always maintain your foundation .

(03:31):
Keep your core diversification solid using instruments like the SPDR S&P 500 ETF Trust , SPY .
Finally , don't ignore fixed income ; while the bond market has rallied , diversified exposure through the iShares Core U.S.
Aggregate Bond ETF , AGG , still offers stability .

(03:52):
That’s all for this week , folks .
Enjoy your weekend , and trade safely !