LIVE MARKETS-Looks can be deceiving: Small caps suddenly pack a punch

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

LOOKS CAN BE DECEIVING: SMALL CAPS SUDDENLY PACK A PUNCH

A number of indexes have celebrated fresh record highs this month. Small caps, however, have been noticeably absent from the party.

That said, traders are taking note of small caps' improving relative strength vs large caps.

The S&P 500 index .SPX, S&P 100 .OEX, Nasdaq composite .IXIC, Nasdaq 100 .NDX, NYSE composite .NYA, and large-cap Russell 1000 .RUI are among indexes that have scored record closing highs this July.

The Dow Jones Industrial Average .DJI has so far just missed. On July 3, it ended down just 0.41% from its December 4, 2024 record close. It finished Thursday down 0.81% from that level.

Meanwhile, new highs have certainly proven to be no easy feat for the small-cap Russell 2000 .RUT. The Russell 2000 finished Thursday down 7.34% from its record close seen on November 8, 2021.

With its 1.5% YTD gain, the RUT is significantly underperforming the RUI's 6.7% YTD rise. With this, the RUT/RUI ratio is on pace for its ninth-straight yearly decline.

On April 11, the RUT/RUI ratio fell to a 25-year low:

Since then, however, small caps have suddenly shown some fight. In July, the RUT is up 4.1% vs an RUI gain of 1.2%, and the ratio is on track for its best month since November 2024.

And although just early in July, it won't take much additional strength for the ratio to be on pace for its biggest quarterly gain since Q1 2021.

Indeed, small caps would appear to have room for greater outperformance even if the ratio just challenges its descending 200-day moving average and the resistance line from its March 2021 high.

Given that the resistance line has capped ratio strength over the last couple of years or so, small-cap bulls will need to see it overwhelmed to suggest a more enduring turn in trend is underway.

A ratio break of its April trough can put the early 1999 record low at risk.

(Terence Gabriel)

*****

EARLIER ON LIVE MARKETS:

TOO COMPLACENT... CLICK HERE

"DISAPPOINTING" BRITISH GDP KEEPS AUGUST BOE RATE CUT ALIVE CLICK HERE

HSBC SEE AN ODD, AND ENTICING THING IN ASIAN EXPORT DATA CLICK HERE

EUROPEAN STOCKS FLOUNDER AS TARIFF WORRIES RESURFACE CLICK HERE

EUROPE BEFORE THE BELL: FUTURES WOBBLE ON NEW TARIFF THREATS CLICK HERE