Investors stampede into small caps, flows hit 2024 peak
The sharp rotation in the US stock market last week included a massive dash into small-cap stocks.
Investors are betting that softer US inflation will pave the way for interest rate cuts by the Federal Reserve and disproportionately benefit smaller firms, which tend to have higher shares of floating rate debt and are more sensitive to the ebbs and flows of the economic cycle.
Flows into the iShares Russell 2000 exchange traded fund surged to about $3.7 billion for the five days ending Friday, the product’s highest one-week net inflow of 2024.
On top of that, 2.1 million call options on IWM changed hands, the highest one-day volume for bullish derivative bets on the fund since 2009.
“Greater confidence around Fed cuts coming soon clearly helps to make the case for moving back into small caps, and we confess that we exited last week more comfortable nibbling on small caps,” writes Lori Calvasina, head of global equity strategy research at RBC Capital Markets.
Last Thursday, the equity market clearly bore the hallmark of a fierce rotation (i.e., buying some segments of the market while selling others). But across the ETF space, the inflow story was more uniform — everything from broad S&P 500 funds, equal weight, the Nasdaq 100, and semiconductors received relatively robust net flows.
“Greater confidence around Fed cuts coming soon clearly helps to make the case for moving back into small caps, and we confess that we exited last week more comfortable nibbling on small caps,” writes Lori Calvasina, head of global equity strategy research at RBC Capital Markets.
Last Thursday, the equity market clearly bore the hallmark of a fierce rotation (i.e., buying some segments of the market while selling others). But across the ETF space, the inflow story was more uniform — everything from broad S&P 500 funds, equal weight, the Nasdaq 100, and semiconductors received relatively robust net flows.
