Good morning, investors. Big Tech stocks took a breather on Tuesday, the same day that famed “Big Short” investor Michael Burry accused the AI mega-cap names of artificially boosting earnings and padding profits.

That might be enough to spook markets at the edges.

But until we see evidence of fabricated numbers I’m staying focused on Big Tech companies repeatedly saying they can barely keep up with demand for their products.

🚨Full Signal: Our next in-depth interview for our new show releases at 9:00 AM ET today with Kevin Gordon, head of macro research at Charles Schwab — subscribe on YouTube, Apple, and Spotify to tune in!

Investors keep warning about an AI bubble but the real froth signal could lie with small-cap stocks. 

Over the last 100 days, the Russell 2000 — which includes speculative names ripe for moonshot bets — has outperformed the higher quality S&P SmallCap 600 by 9 percentage points.

That’s the widest gap since 2010, according to DataTrek Research.

Roughly 40% of the Russell 2000 is unprofitable while S&P names require profits for inclusion.

That suggests the current spread is more of a sign of elevated animal spirits than anything like confidence in fundamentals. 

That outperformance is an anomaly against history, as noted by DataTrek co-founders Nicholas Colas and Jessica Rabe. 

The team sent the chart below to clients this week, illustrating trailing 100-day price returns between the two indexes over the last 15 years.

“When the blue line is above/below the x axis, the 600 has out/underperformed the Russell by the number of percentage points shown on the y axis,” Colas and Rabe said.

Typically, stretches of small-cap outperformance driven by money-losing companies tend to appear in the later stages of a bull cycle as investors’ risk appetite grows. 

That one of the riskiest corners of the market is seeing an uptick in enthusiasm should be more of a red flag for the bears than capital flowing into dominant, cash-rich Big Tech names.

What’s intriguing, too, is that the recent flows into the Russell 2000 are occurring without an obvious macro catalyst. 

Bond markets are showing little movement beyond historical norms, earnings remain robust, and the government shutdown has ultimately passed as a non-event for markets despite the data blackout.

The relative stability implies investors aren’t being forced down the risk curve. 

They are choosing to go venture out on their own.

“The Russell 2000’s recent wide outperformance versus the S&P 600 is, historically speaking, not so much a sign that it’s time to rotate into the latter as it is a signal that animal spirits are especially elevated,” Colas and Rabe said.

“Over the short term, we expect that to continue. However, the data here suggests small cap investors start considering a more cautious stance as we get into 2026.”

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📉Delayed economic data could soon come out. With the shutdown coming to an end, government agencies may begin publishing numbers we missed over the last two months, such as the labor market and inflation metrics. (Barron’s)

🤖 Tech giants are using complex funding schemes to fuel AI ambitions. The capital requirements are so great that Wall Street is inventing new ways for companies like Meta and OpenAI to shift money around. (WSJ)

🎙Is AI really driving corporate layoffs? I joined the New York Stock Exchange’s podcast to discuss how companies like Amazon and Walmart are blaming AI for recent layoffs, and the outlook for jobs in the coming months. (NYSE)

🗓November 12, 1999: President Bill Clinton signed the Gramm-Leach-Bliley Act, repealing Glass-Steagall barriers and allowing commercial banks, investment banks and insurers to consolidate. This reshaped the business of finance for the next decade.

📰 I’m Phil Rosen, co-founder 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 and host our show, Full Signal, 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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