Market leadership is rotating and small caps are back in the driving seat

What was said:

Market leadership is shifting. As of Friday, the Russell 2000 has outperformed the S&P 500 for 11 consecutive trading days, a rare signal that investors are rotating away from mega-cap tech and toward smaller, more cyclical parts of the market. That’s being reinforced by strength in Energy, Materials and Industrials, driven largely by rising critical and precious metals prices.

At the same time, big tech is under pressure. Apple faces rising memory costs from Micron, forcing an unattractive choice between higher iPhone prices or lower margins at a premium valuation. Microsoft is also losing momentum, with operational and strategic headwinds, overlayed with weakening technicals as leadership rotates away from mega-caps.

Why we give a ****:

Capital is flowing toward small caps and although new Trump tariffs may momentarily de-rail the rotation, capital flowing from the mega cap tech stocks to smaller cap stocks could potentially be a long-term trend that investors can take advantage of.

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Relevant stocks: LSE:CNE, TSXV:PUR, NEO:PNPN, TSXV:SYH, TSX: NXE, TSXV, FMS, TSXV: PGZ, LSE:ATOM, LSE:TTE, NASDAQ:CEG, LSE: KIST

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