Core Viewpoint - The market is expected to experience increased dispersion among MAG7 stocks in 2026, with a shift in focus from AI infrastructure providers to adopters of AI technology [1]. Market Performance - Over the past 6 months, only 17% of S&P constituents outperformed the index, but this figure rose to 61% in the last month, indicating improved market breadth [2]. - Small-cap stocks, represented by the Russell 2000, have shown the best improvement in breadth compared to both 50-day and 200-day moving averages [3]. Economic Indicators - Recent flash PMI data has been disappointing, suggesting potential challenges for the market narrative [4]. - The economy is showing signs of slowing, which is expected to continue into 2026, although earnings have not yet weakened significantly in line with macroeconomic data [5]. Earnings and Valuation - Since August, there has been a halt in aggressive multiple expansion, with earnings growth continuing to accelerate [6]. - The Russell 2000 index has seen a significant increase in unprofitable stocks, which are up 62% since April 8, compared to a 29% increase in profitable stocks [8]. Investment Strategy - It is recommended to avoid unprofitable lower-quality segments within small caps and to focus on higher-quality profitable segments [9].

Core Viewpoint - The small-cap sector is showing significant momentum, with the S&P 500 up 17.1% and the Russell 2000 up 14.8%, indicating a potential for strong earnings growth in 2026 [1] Small Cap Performance - Small caps have experienced a profits recovery, with positive growth and upward revisions in earnings expectations [3][4] - Historical data suggests that after significant moves in the Russell 2000, there is a tendency for continued positive performance, with a 29% increase expected a year later [5] Investor Behavior - There is a notable increase in buying activity from various investor types, including retail and institutional investors, driven by the momentum in small caps [6] - The supportive Federal Reserve policy, including rate cuts, is beneficial for small-cap companies that are more leveraged [7] Market Conditions - The overall market sentiment has improved due to reduced uncertainty regarding tariffs and favorable earnings recovery [8][9] - M&A activity is increasing, particularly in the healthcare sector, which is positively impacting small-cap sentiment [9] Valuation Insights - While small caps are trading slightly above average valuation multiples, micro caps are trading 80% above average on sales multiples, indicating potential overvaluation in the micro-cap segment [11] - The expectation is for small caps to outperform larger caps, with earnings growth driving returns rather than price appreciation [16] Earnings Growth Expectations - Earnings growth for small caps is projected to be around 20%, compared to mid to low teens for large caps, suggesting better returns for small caps in the upcoming year [16]

Jonathan Kinsky, BTIG, has a new note on the small caps today. So, we wanted to bring him in to talk to you about it. It's nice to have you, especially given this move we've seen in the last few days at least.Um, we getting confirmation of a of a bigger breakout. >> Hey, Scott. So, I mean, yeah, there's a couple of points here.one um you know we had this the Russell 2000 breakout in September two new all-time highs but the S&P 600 which is a small cap index that has a profitability component um really conti ...

Core Insights - Small caps have recently outperformed larger caps, indicating a potential shift in market dynamics as they enter a historically strong period [1][2][4] - The Russell 2000 index, representing small caps, is expected to perform better than the Russell 1000, which includes larger companies, over the next few months [2][7] Index Overview - The Russell 2000 consists of approximately 2,000 stocks with market capitalizations under about $4.5 billion, while the Russell 1000 includes larger stocks with market caps over $10 billion [2][3] - Historical data shows that small caps tend to outperform large caps from mid-December through early March, although they may experience greater volatility [4][7] Performance Metrics - A chart comparing the Russell 2000 to the Russell 1000 indicates that small caps are approaching a favorable performance zone, which could signal continued outperformance [5][6] - The iShares Russell 2000 ETF has tested a key resistance level at 240, with previous attempts to break above this level resulting in sell-offs [9][10] Market Dynamics - Small caps are more closely tied to the U.S. economy and are more sensitive to interest rates and credit conditions, leading to greater swings in performance compared to large caps [7][8] - Large caps benefit from global revenue streams and stronger balance sheets, making them more resilient during economic downturns [8] Investment Considerations - Investors are advised to monitor whether the Russell 2000 can maintain its position above the 2400 level and if small caps can continue to outperform despite potential pullbacks [10][11] - Stock picking in the small cap space requires thorough research due to lower analyst coverage, emphasizing the importance of strong balance sheets and fundamental analysis [8][11]

Market Drivers - The current stock market is significantly influenced by three main factors: tariffs, interest rates, and AI [1] Analyst Background - The author has an average stock return of over 30% from articles over a one-year period and has experience as a Credit Manager for a mid-sized publicly traded bank [2] - The portfolio consists of 50-75% deep value stocks, primarily in small caps [2]

Joining us now is Tom Lee. He's Funst Strat's head of research and a CNBC contributor. It's good to see you joining us from the nation's capital today.So, what's your take on everything that we are talking about now daily. Uh, well, I I heard the earlier segment, Scott, and I I do think I'm kind of more in the Jamie Diamond camp, you know, that uh the in Steve Leeman's point that there's opacity in private credit. And that's the problem that investors are going to grapple with for some time. And I think tha ...

Market Trends - Small caps are hitting record highs, indicating a shift in investor interest towards cheaper alternatives compared to mega-cap tech stocks, suggesting potential for gains [1][2] - Small caps are more sensitive to interest rates, and lower rates could provide momentum for sustained growth, especially if further rate cuts occur [3] Inflation and Consumer Spending - Recent reports indicate that tariffs are increasing prices, with high-income consumers spending on luxury items while lower-income consumers seek discounts [4][5] - There is concern about inflation impacting profit margins, as companies may either absorb tariff costs or pass them onto consumers, which could hurt revenues [5][6][7] - Despite inflation concerns, revenue growth remains strong, particularly among high-end consumers, as evidenced by positive results from luxury brands [8][9][10] Corporate Credit and Investment Sentiment - Notable investors are shorting corporate credit in developed markets, citing tight spreads, which raises questions about market stability [11][12] - The sentiment among banks remains bullish on the economy, with reports of healthy consumer spending and zero loss provisions from major banks [14][15] - While there are red flags such as tariffs and narrow spreads, there are also positive indicators driving the economy forward, suggesting a mixed outlook [16]

Group 1 - BlackRock is actively involved in a data center deal, indicating strong performance across passive, active, and alternative investment strategies [1] - Small-cap stocks are expected to experience volatility until the end of the month, but a potential catch-up trade is anticipated post-Fed meeting and China trade deal discussions [1] Group 2 - Victoria's Secret is undergoing a long-term turnaround with the involvement of activist investors, suggesting potential for future growth [2] - There is interest in semi-equipment companies, with existing investments in Lamb and KLA, and developments noted in Pterodine [2]

Core Insights - Small caps are experiencing a resurgence, with significant potential for dividends, specifically a 7.1% payout being highlighted as an opportunity [2][8] Small Cap Performance - Small caps have historically underperformed compared to large caps, but recent trends indicate they are now matching or even surpassing large caps in performance, as evidenced by the iShares Russell 2000 ETF [3] Advantages of Small Caps - Small firms maintain strong client relationships, benefiting from customer loyalty and directly profiting from the strength of the US economy, providing a hedge against global economic issues [4] Dividend Challenges - Many small caps are in early growth stages and may not be able to offer dividends while funding their expansion, contrasting with larger companies that typically provide more consistent dividends [5][6] Investment Strategy - The focus has been on closed-end funds (CEFs) that invest in large caps and high-yield bonds, which have historically provided higher returns and dividends compared to small caps [7] Exception in Small Caps - The Royce Small-Cap Trust (RVT) is noted as an exception, offering a 7.1% dividend while closely tracking small cap performance [8] Fund Structure and Holdings - RVT invests in a diverse portfolio of 488 small caps, with top holdings including IES Holdings, Assured Guaranty, and SEI Investments, all showing strong revenue growth [9][10] Dividend Flexibility - RVT's dividend is not fixed but floats based on the net asset value (NAV), allowing for potential increases in payouts as NAV rises, which has been consistent over the past five years [11][12] Market Position - RVT is currently available at a 9.2% discount to NAV, indicating potential for upside as the discount has decreased from higher levels earlier in the year [12][13]

Core Insights - The article introduces "The Undercovered Dozen," a selection of twelve actionable investment ideas focusing on tickers with less coverage, which can include both large caps and small caps [1] Group 1: Inclusion Criteria - Tickers must have a market cap greater than $100 million [1] - Tickers must have received more than 800 symbol page views in the last 90 days on Seeking Alpha [1] - Tickers must have fewer than two articles published in the past 30 days [1] Group 2: Purpose and Benefits - The initiative aims to highlight investment opportunities that may be overlooked by the market [1] - Following this account will provide a weekly review of these undercovered ideas from analysts [1]