OTW #53: Small caps ready to rally?, Bond troubles, and more.
Important financial stories to check out over the weekend
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2. Bonds continue to fall out of favor.
Fund managers are trimming their bond holdings.
“In January, FMS investors rotated into REITs, staples, commodities and added to cash...and trimmed longs in bonds, banks, insurance, telecoms and cut further UK” (source:
DC Lite #49 and BofA Securities)Antagonist’s take
I’m bearish on bonds in the short term as well. Yesterday, I shared this trade idea with premium members on how to profit when prices fall.
3. Are small cap stocks poised for a rally?
After hitting a 52-week low in late October, small caps finally came roaring back. They jumped more than 25% in less than two months. And by late December, they were hitting 52-week highs…
Small caps packed several years’ worth of gains into a few short weeks. These stocks even whipsawed from a 52-week low to a 52-week high in just eight weeks.
That’s the fastest reversal from bearish to bullish we’ve ever seen in these stocks. And it’s a week shorter than the second-quickest reversal on record.
(Source: Brett Eversole, Stansberry Research)
Eversole also analyzed every new instance of the Russell 2000 going from a 52-week low to a 52-week high within six months. These rapid swings have almost always led to major outperformance:
Antagonist’s take
Small caps have cooled off to start the year with the Russell down over 4% YTD.
We may be on the verge of another turnaround, however, as multi-cap managers have underweighted their small-cap holdings to near-record lows:
I see multi-cap managers’ small-cap positioning as a bullish signal. Here’s why:
Contrarian Indicator: Extreme underweighting suggests that the bulk of the selling is done. This sets the stage for a price rebound if sentiment shifts or if there’s a catalyst for positive change.
Positive Surprises: When expectations are low, it doesn’t take much in terms of positive news or earnings surprises to trigger a rally.
Asset Allocation Shifts: Even minor portfolio reallocations by multi-cap funds can significantly increase inflows into small caps, which would push prices up.
Market Psychology & FOMO: Initial gains in small caps can trigger a “bandwagon” effect, increasing prices as more investors fear missing out.
If you’re looking for specific small-cap stock ideas, check out our Antagonist Blend Portfolio. We hold several that are significantly beating the S&P 500.
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