Good morning, investors. Investors took last week’s rate cut and economic news as a “Goldilocks” update on where markets could go next. Asset prices are rising across the board, and it’s awakened even the sleepy and forgotten parts of the market.

The last time small-cap stocks did this well Apple had just released the iPhone 13 and the Atlanta Braves had just won the World Series.

The day after the Federal Reserve announced its rate cut, the Russell 2000 hit its first record close in 967 trading days. It marked the index’s second-longest streak without an all-time high ever, behind the 1,177-day streak that ended in 2004, according to Bespoke Investment. 

But notwithstanding small-cap investors’ four-year wait, this is exactly what bulls expected. 

Rate cuts are supposed to catalyze rallies in the most rate-sensitive corners of the market, and few segments are as tied to borrowing costs as small caps.

The companies that make up the Russell 2000 don’t have the gushing cash flows or global reach of their larger counterparts at the top of the S&P 500. They fluctuate with credit conditions, and lower rates help them widen margins, invest and expand.

From its October 2023 low, the index has climbed nearly 50%.

It’s up 9.73% in 2025. 

In the weeks leading up to the Fed’s policy move and the days since, the market rally has broadened, with the momentum from small-caps underscoring the point.

More than 64% of the small-cap S&P 600 are trading above their 50-day moving average, squarely above their historical average, indicating near-term strength.

Like small caps, the S&P 500, Dow and Nasdaq all touched new records after Wednesday’s rate cut. 

To be sure, small-cap stocks have lagged large-caps by roughly 47% over the last three years. That’s one of the worst stretches of underperformance in the last century.

That said, extremes like this have often set the stage for powerful reversals.

In the early 2000s, after a similar gap, small-caps went on to outperform for years.

Markets are entering the Fed’s easing cycle with rising earnings optimism, dwindling recession fears and an AI boom that continues to accelerate. 

Against that backdrop, small caps are finally doing what bullish forecasters have been anticipating for months.

Ed Yardeni of Yardeni Research, for one, still maintains his “Roaring 20s” outlook for stocks and sees the S&P 500 hitting 7,700 by the end of next year.

“If the stock market parties like it's 1999 in response to the Fed's monetary easing,” Yardeni said, “then we might get there sooner as a result of a meltup that could be followed by a meltdown.”

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🗞 The White House announced a $100,000 annual fee for new H-1B visa applications. The news rippled through corporate America, and many companies like Amazon, Google and Microsoft warned H-1B employees not to leave the country, and urged overseas employees on the visa to return to the US. (WSJ)

🚗 Berkshire Hathaway exited its stake in BYD. Warren Buffett’s firm began trimming its position in August 2022 following the Chinese stock’s 41% surge earlier that year. As of March 31, Berkshire has sold its entire 225 million share position. (CNBC)

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📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day — unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else.

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