Bonds are catching a bid as a risk-off tone plays across the market.
Aside from intraday knee-jerks in price, not much has changed. Rates and the US dollar remain range-bound. US Treasuries have yet to provide a definitive buy signal.
And the S&P 500 continues to contend with overhead supply at the 4,200 level.
It’s a chop fest.
But one data point has changed in recent sessions – the probability of a rate cut or a rate hike next month based on the fed funds futures…
Check out last Thursday’s probabilities after the FOMC raised the overnight rate by 25 basis points:
The futures market was pricing an 8.9% chance of a rate cut in June with a 91.1% chance of a pause in the hiking cycle.
As many of you know, something we've been working on internally is using various bottom-up tools and scans to complement our top-down approach. It's really been working for us!
One way we're doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).
Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.
But the scan doesn't just end there.
We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.
We’re back to a key level of interest for Small-caps on an absolute basis. And we’re back down to historic levels relative to Large-caps. The chart tells a very powerful story.
I’m a buyer down here.
If the Russell2000 is above last Summer’s lows, I will be long the $IWM ETF. I also think there will be plenty of opportunities this summer in small-cap stocks.
We talked about $IWM internally this morning and I suggested a good, levered way to play this thesis while honoring a nearby risk management level that will get us out of the trade without much pain if we're wrong.
