Core Viewpoint - Jefferies' latest U.S. stock strategy report highlights a strong performance of small-cap stocks in August, ending a period of underperformance compared to large-cap stocks, but warns of underlying risks [1][2]. Summary by Sections Small-Cap Stock Performance - The Russell 2000 index rose by 7% in August, marking its best performance for the month since 2000, and has rebounded 35% since the low on April 8, outperforming large-cap stocks by 441 basis points [1]. - Micro-cap stocks performed exceptionally well, increasing by 9.3% in August and 47% from their low [1]. Drivers of Small-Cap Stock Rebound - The rebound in small-cap stocks was primarily driven by low market capitalization, low-quality, and unprofitable companies, with low market cap stocks rising by 10.5% in August and 52.8% since April 8 [2]. - Unprofitable companies saw an 8.5% increase in August and a 52.4% rise from their low, while high-beta stocks rebounded by 63.8% from their low [2]. - Key factors for the small-cap stock rebound include rising expectations for Federal Reserve interest rate cuts and corporate earnings exceeding expectations [2]. Fund Flows and Earnings Outlook - Despite the strong short-term performance of small-cap stocks, there has been a continuous outflow from small-cap stock ETFs, totaling $11.4 billion since the market low [2]. - Analysts expect large-cap stock earnings growth to continue to outpace small-cap stocks in Q3, with Q4 being a critical period for crossing thresholds [2]. Stock Style Performance - Cyclical stocks showed robust performance, rising by 7.6% in August and 40.2% from their low, with a year-to-date increase of 10% [2]. - Long-term growth stocks increased by 6.8%, 33.1%, and 2.4% respectively [2]. - As the Russell 2000 index rebounded, bond proxy products lagged, rising by 17.7% from their low [2]. Active Management Fund Performance - Since early April, actively managed funds have generally underperformed benchmark indices, with only large-cap value funds outperforming [6]. - Among all funds tracked by Jefferies this year, only 28.4% have outperformed their benchmarks [6].

Market Performance - The Dow Jones ETF declined by 2.49% [1] - The Nasdaq 100 ETF fell by 2.47% [1] - The S&P 500 ETF decreased by 2.38% [1] - The US Real Estate ETF dropped by 2.08% [1] - The Russell 2000 Index ETF fell by 2.01% [1] Bond and Commodity Performance - The US Treasury 20+ Year ETF decreased by 1.75% [1] - The Brent Oil Price Fund fell by 1.35% [1] - The Barclays US Convertible Bond ETF and Long Dollar Index both declined by 0.95% [1] - Soybean and Agricultural Funds, along with Emerging Markets ETFs, experienced minimal declines of up to 0.10% [1] Currency and Alternative Investments - Long positions in the Japanese Yen rose by 1.11% [1] - Long positions in the Euro increased by 1.28% [1] - Gold ETFs saw a rise of 3.09% [1] - The Fear Index (VIX) increased by 7.26% [1]

Group 1 - Brent oil price fund decreased by 3.88% on April 8 [1] - U.S. real estate ETF and Russell 2000 index ETF fell by at least 2.63% [1] - 20+ year U.S. Treasury ETF dropped by 1.89% [1] - Nasdaq 100 ETF declined by 1.8% [1] - S&P 500 index fell by 1.57% [1] - Dow Jones ETF decreased by 0.81% [1] - Emerging markets ETF dropped by 1.41% [1] - Agricultural funds fell by 0.79%, with soybean fund down by 0.77% [1] - Barclays U.S. convertible bond ETF decreased by 0.76% [1] - Long dollar index fell by 0.46% [1] Group 2 - Euro long position increased by 0.42% [2] - Gold ETF rose by 0.54% [2] - Yen long position increased by 1.22% [2]