The Fed Just Lit a Fire Under Small-Cap Stocks. Here’s the Best ETF to Trade It.

Core Insights - The Federal Reserve's first rate cut of the cycle is typically a bullish signal for small-cap stocks, as highlighted by John Rowland during a recent livestream [1] - The Russell 2000 ETF (IWM) has reached a new high, marking its first of the year and the highest close since 2021, indicating a three-year breakout [2][4] Small-Cap ETF Comparison - The IWM has already broken to new highs, while the S&P SmallCap 600 ETF (VIOO) is lagging but shows a similar V-bottom formation, suggesting potential upside [4] - The Russell 2000 consists of approximately 2,000 companies, many of which are unprofitable or of low quality, while the S&P SmallCap 600 includes around 600 companies that are stringently screened for liquidity and profitability, representing the "cream of the crop" [5][6] Market Dynamics - Small-cap stocks are experiencing a breakout, but the approach to investing in them is crucial; IWM provides broad exposure with weaker links, whereas S&P 600 emphasizes profitability and liquidity [6] - Momentum setups in both IWM and VIOO suggest follow-through potential, and monitoring the relative strength of the S&P 600 could indicate if quality is leading [7] - With the onset of rate cuts, small-caps have historically outperformed as financial conditions improve, making it essential to track economic indicators and upcoming Fed data for potential market movements [7]