Chart of the Day - Tuesday, July 23, 2024

Whether it lasts is an open question, but the combination of lower rates and higher earnings has to be a good thing for most stocks. My guess is that this one will have staying power. As the relative performance of the Russell 2000 shows below, it’s early days still. /END pic.twitter.com/ryqT9ahWjq

— Jurrien Timmer (@TimmerFidelity) July 23, 2024

🏆 Today’s Chart of the Day was shared by Jurrien Timmer (@TimmerFidelity).

• Small Caps are leading by a wide margin again this week. Over the past three weeks, the Russell 2000 has outpaced the S&P 500 by nearly +11%, marking the best three-week outperformance in more than two decades.

• Despite this historic move, Small Caps are still in a downtrend relative to Large Caps (blue). The sharp rebound over the past three weeks may end up being a dead cat bounce for this ratio.

• Small Cap leadership will become much more pronounced and sustainable if the ratio finally breaks out. Jurrien points out that there’s plenty of potential upside for this.

The Takeaway: Even after a historic rebound, Small Caps are still in a downtrend relative to Large Caps. Small Cap leadership will become more pronounced and sustainable if this relative trend breaks out.