We are all familiar with the so-called "October Effect.† Investopedia describes it this way: "The October effect refers to the belief that stocks tend to decline during the month of October. It is considered to be more of a psychological expectation than an actual phenomenon, as most statistics contradict the theory.† It's an interesting phenomenon, to use their word. We come into the month looking for an increased potential for market crashes, and an increase in volatility vs. previous months. We exp ...

They say a win for one is a win for all, but that might not hold true for ETFs. The US exchange-traded fund market has made headlines this year for its massive growth, recently surpassing $12.7 trillion. But the boom hasn’t reached all corners of the ETF industry: Plenty of funds lost assets this year. The SPDR S&P 500 ETF Trust (SPY) and iShares Russell 2000 ETF (IWM) have lost $31 billion and $9 billion in AUM year to date, respectively, according to VettaFi data. Experts attributed this to a combinatio ...

Core Insights - The article discusses the performance comparison between the S&P 600 and the Russell 2000, emphasizing the impact of profitability on investment returns [11][28]. - It highlights that the S&P 600, which requires companies to be profitable, has consistently outperformed the Russell 2000, which includes a significant number of unprofitable firms [10][14][28]. Group 1: Performance Comparison - The S&P 600 has shown better performance over various time frames compared to the Russell 2000, with most one-year, five-year, and ten-year rolling returns favoring the S&P 600 [14][19][22]. - Historical data indicates that investing in the S&P 600 for any ten-year period over the past 31 years would yield positive returns [26][28]. - The S&P 600's requirement for positive GAAP earnings contributes to a higher quality of aggregate earnings and cash flow, leading to improved returns [28][30]. Group 2: Investment Strategy - A systematic investment strategy that focuses on high profitability stocks can yield better returns compared to a strategy that includes low or non-profitable stocks [5][11]. - The article suggests that a diversified basket of profitable stocks can provide stable cash flow and high yield, akin to a long-term fixed income investment [7][8]. - The performance of the Russell 2000 is negatively impacted by its higher proportion of unprofitable companies, which dilutes overall returns [10][14].

Group 1: Ukraine Conflict - A new wave of Russian missile and drone attacks occurred on October 5, resulting in at least 5 fatalities and 14 injuries across regions including Lviv and Zaporizhzhia, involving over 50 missiles and approximately 500 drones [2][3] - There was a 36% surge in Russian long-range drone and missile strikes in September compared to August, with a total of 5,638 drones and 185 missiles fired [3][8] - Russian forces likely stockpiled ballistic and cruise missiles during September in preparation for large-scale strikes aimed at overwhelming Ukrainian air defense systems [3] Group 2: Oil Market - OPEC+ is nearing an agreement for a modest increase in oil supply for November, considering a base case of 137,000 barrels per day (bpd), with discussions of larger increases up to 411,000 bpd or 500,000 bpd [4][5] - Global oil prices remain under pressure, with Brent crude trading near $65 per barrel and West Texas Intermediate (WTI) below $61 [5] - Analysts project a "sizeable surplus" in the oil market for the fourth quarter of 2025 and into early 2026, driven by increased OPEC+ output and softening demand [5] Group 3: D.C. Housing Market - The D.C. housing market is under strain due to a federal government shutdown that began on October 1, 2025, affecting approximately 800,000 federal employees and another 700,000 working without pay [6][9] - The median listing price in D.C. plunged nearly 15% annually, with active inventory surging 48.7% year-over-year as of September 2025 [7][9] - The current shutdown is expected to cause delays in federally backed mortgages and could stall sales in flood-prone areas, with potential impacts similar to previous government shutdowns [9]

Core Insights - The Federal Reserve's anticipated shift towards lower interest rates in September 2025 is expected to benefit small-cap companies by reducing their borrowing costs and improving equity valuations [1][4][14] - The iShares Russell 2000 ETF (IWM), which tracks approximately 2,000 small-cap companies, has shown strong performance, surging 7% in August 2025 and reaching an all-time high in September 2025 [4][14] - The IWM's broad sector exposure, particularly in financials, healthcare, and industrials, offers diversification benefits compared to large-cap indices that are heavily weighted in technology [3][14] Interest Rate Impact - A 90% probability of a quarter-point interest rate cut in October 2025 is indicated by the CME FedWatch Tool, which is expected to disproportionately benefit smaller firms with higher growth potential [1][14] - Lower interest rates decrease the discount rate on future cash flows, enhancing the attractiveness of small-cap stocks [1] Market Dynamics - The annual reconstitution of the Russell 2000 Index, which will become semi-annual starting in 2026, allows for better responsiveness to market conditions and potential shifts towards small-cap stocks [2][14] - The IWM's performance has been narrowing the gap with the S&P 500 year-to-date, driven by macroeconomic shifts and undervaluation [4][14] Seasonal Trends - Historical data indicates that October and November are traditionally strong months for stock performance, with the Russell 2000 closing higher on November 25 than on September 30 in 13 of the past 15 years, reflecting an 87% occurrence rate [9][11][15] - Traders are encouraged to monitor seasonal patterns and consider them alongside technical and fundamental analysis for optimal market entry points [10][16] Trading Opportunities - Various trading assets are available for capitalizing on the IWM's performance, including the iShares Russell 2000 ETF (IWM), Vanguard Russell 2000 ETF (VTWO), and futures contracts [8][15] - The IWM's median market cap of less than $1 billion helps mitigate concentration risk, making it an attractive option for traders seeking broader market exposure [3][14]

Market Performance - The S&P 500, Nasdaq, and Dow Jones have reached all-time highs in 2025, with gains of approximately 12.5%, 16.1%, and 8.4% respectively as of September 25, 2025 [1] - Historically, the fourth quarter has been the best for the stock market, with the Dow Jones, S&P, and Nasdaq posting gains of 4.3%, 3.6%, and 4.7% respectively over the past three decades [2] Economic Indicators - The U.S. economy grew at a robust 3.8% pace in Q2 2025, driven by stronger consumer spending, marking an upward revision from a previously reported 3.3% growth [3] - Consumer spending rose by 2.5% in Q2 2025, significantly up from 0.6% in Q1, indicating a strong consumer spending pattern heading into the holiday season [4][5] Investment Trends - Significant investments in artificial intelligence (AI) continue, with NVIDIA announcing plans for investments worth up to $100 billion in OpenAI and a $5 billion investment in Intel [6][7] - The AI sector is expected to drive Wall Street performance in the coming months due to ongoing mega-deals [7] Earnings Outlook - The overall trend for S&P 500 earnings estimates remains positive, with Q3 2025 earnings expected to rise by 5.2% year-over-year, supported by a 6.0% increase in revenues [9] Sector Analysis - Small-cap stocks are gaining momentum due to Fed rate cut hopes and a positive GDP outlook, making the iShares Russell 2000 ETF (IWM) a favorable investment [12] - The Financial Select Sector SPDR ETF (XLF) is positioned well due to anticipated increases in long-term yields and favorable earnings revisions [13] - The Consumer Discretionary Select Sector SPDR ETF (XLY) is expected to benefit from the holiday season, with retail sales projected to increase by 2.9% to 3.4% in 2025 [14] - The Energy Select Sector SPDR ETF (XLE) is gaining momentum due to the AI boom and expected higher heating demand in winter months [15]

Core Insights - The Russell 2000 index reached a record high of 2467.70, marking its first closing high since 2021, driven by expectations of lower interest rates following a Federal Reserve announcement of a quarter percentage-point cut and projections for two more cuts by year-end [2][7] Group 1: Small-Cap Performance - Small-cap stocks, defined as companies with market capitalizations between $250 million and $2 billion, have been anticipated to outperform due to lower interest rates, which typically lead to higher profits and reduced financing costs [3][6] - The iShares Russell 2000 ETF (IWM) has outperformed the iShares Russell 1000 ETF (IWB) over the past three months, with returns of 15% compared to approximately 10% for larger companies [5][7] Group 2: Valuations and Earnings Outlook - As of the end of August, small-cap stocks are projected to deliver annualized returns of 8% over the next decade, significantly higher than the less than 1% expected for large-cap stocks, according to a BofA Global Research report [6] - Analysts expect small-cap companies to grow earnings at a faster rate than their large-cap counterparts in the upcoming quarters, indicating a shift from previous trends [6][7]

Core Insights - The article discusses the performance of U.S. diversified ETFs in 2025, highlighting that nearly all actively traded ETFs are up, with a few exceptions that are underperforming [1][2][3] Performance Overview - As of September 10, 2025, 276 out of 282 U.S. diversified funds with an average daily volume of at least 50,000 shares have positive returns, while only six ETFs are down [2][3] - The S&P 500 has returned over 11.5% this year, including dividends, indicating a strong market performance [3] Underperforming ETFs - The ETFs that have lost value include Simplify Volatility Premium ETF (SVOL) at -3.08%, Pacer Trendpilot US Mid Cap ETF (PTMC) at -2.95%, and Direxion HCM Tactical Enhance U.S. Equity Strategy ETF (HCMT) at -1.83% [10] - Pacer Trendpilot US Mid Cap ETF's strategy involves shifting between equities and cash based on market signals, which has resulted in a negative return of nearly 3% this year [4][6] Market Timing Issues - Todd Rosenbluth from TMX Vetta Fi notes that some ETFs struggled due to incorrect market timing strategies, which led to missed opportunities in a rising market [3][6] - Staying invested in equities has proven to be more beneficial than attempting to time the market, as evidenced by the S&P MidCap 400's increase of over 4.6% this year [6] Sector Exposure Risks - The Invesco S&P SmallCap High Dividend Low Volatility ETF (XSHD) has a significant exposure to real estate, comprising over 50% of its holdings, which has negatively impacted its performance [7][8] - In contrast, the Vanguard S&P Small-Cap 600 ETF (VIOO) and iShares Russell 2000 ETF (IWM) have lower real estate exposure and have performed better, returning over 3% and nearly 8% respectively [8]

Core Insights - The First Trust Small Cap Core AlphaDEX ETF (FYX) debuted on May 8, 2007, and provides broad exposure to the Style Box - Small Cap Blend category of the market [1] Fund Overview - FYX is managed by First Trust Advisors and has accumulated over $880.27 million in assets, categorizing it as an average-sized ETF in its segment [5] - The fund aims to match the performance of the Nasdaq AlphaDEX Small Cap Core Index, which utilizes the AlphaDEX stock selection methodology [5] Cost Structure - FYX has annual operating expenses of 0.61%, making it one of the more expensive options in the smart beta ETF space [6] - The ETF has a 12-month trailing dividend yield of 1.13% [6] Sector Allocation - The Financials sector represents 20.6% of the portfolio, followed by Industrials and Consumer Discretionary as the next largest sectors [7] - The top 10 holdings account for approximately 4.31% of total assets under management, with Commscope Holding Company, Inc. (COMM) being the largest individual holding at about 0.58% [8] Performance Metrics - Year-to-date, FYX has gained approximately 6.63% and is up about 10.81% over the last 12 months as of September 1, 2025 [10] - The ETF has a beta of 1.13 and a standard deviation of 22.17% over the trailing three-year period, indicating medium risk [10] Alternatives - Other ETFs in the small-cap blend space include iShares Russell 2000 ETF (IWM) and iShares Core S&P Small-Cap ETF (IJR), which have significantly larger asset bases and lower expense ratios [12]

Group 1: Market Outlook for Small-Cap Stocks - The likelihood of a Fed interest rate cut is increasing, which positions small-cap stocks for a potential comeback as investors rotate into sectors beyond technology [1][6] - The Russell 2000 Index has surged approximately 3.1% since last Friday and is up nearly 8.9% in August, prompting strategists to revise their outlook on small-cap stocks [2] - Analysts and economists are upgrading their views on small-cap stocks, with some moving from less attractive to neutral [3] Group 2: Performance Expectations - The Russell 2000 is expected to outperform large-cap stocks in the near term, with forecasts indicating that small-cap and low-quality stocks may extend gains due to lower rates relieving balance sheet pressures [4] - Small-cap stocks are believed to be well-positioned for gains, supported by a sector rotation away from large tech companies [5] Group 3: Interest Rate Impact - Expectations for a September interest rate cut have risen to 87.2%, up from 75% prior to Powell's speech, with even higher probabilities for cuts in October (93.8%) and December (98.8%) [6][7] - Small-cap stocks, which are heavily dependent on external borrowings, could significantly benefit from lower interest rates, allowing for increased capital availability and cheaper refinancing of existing debt [8] Group 4: Economic Sentiment - Small-cap companies, being more domestically tied, are poised to outperform as the economy improves, with several financial institutions upgrading their S&P 500 forecasts based on resilient earnings and a supportive macro backdrop [9] - The economy is expected to rebound from the current slowdown, with anticipated rate cuts and other fiscal measures potentially accelerating growth to 3% next year [10] Group 5: Investment Options - Investors can consider various ETFs for increased exposure to small-cap stocks, including iShares Core S&P Small-Cap ETF (IJR), iShares Russell 2000 ETF (IWM), Vanguard Small Cap ETF (VB), Schwab U.S. Small-Cap ETF (SCHA), and SPDR Portfolio S&P 600 Small Cap ETF (SPSM) [11] - IWM is noted for its liquidity, while SPSM has the lowest annual fees at 0.03%, making it suitable for long-term investing; IJR has the largest asset base at $85.35 billion, and VB has outperformed others with gains of 1.85% over the past month and 5.06% over the past year [12]