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The Jackson Hole event on Aug. 22 sent waves through markets. Nine words from Fed Chairman Jay Powell kicked off a risk-on rally that is still in play today. The surge may appear as a tide lifting all boats. But under the surface of this thrust, it’s clear that gobs of capital are pouring into small-caps, advises Lucas Downey, co-founder of MoneyFlows.

From last Friday, the large-cap S&P 500 Index (SPX) has jumped 1.75%. That pales in comparison to the Russell 2000 Index’s rise of 4.38%. By viewing the equity inflows and outflows from Aug. 22 through Aug. 27, we can see a total of 495 stocks under accumulation. Incredibly, 445, or 90%, of those inflows are in companies sized $50 billion and lower. This highlights a broadening rally.
 

But let’s take this thrust a step further. Friday’s rally alone was epic, with the S&P Small Cap 600 jumping 3.8%. Portfolios loaded with smaller health care, financial, industrial, and discretionary names were screaming. Turns out this level of thrust is rare -- and bullish.

Since March 2009, a daily jump of 3.8% or more for the S&P Small Cap 600 has occurred 51 times. Here’s how the index performed afterwards: 

• Three months later, small-caps jump 12.3% on average
• Six months later, small-caps fly 22.3%
• 12 months later, smaller stocks zoom with 47.8% gains

Folks, we are entering a golden age for small-caps. This means that stocks outside of the Mag 7 not only will work, they need to be part of your portfolio allocation. And our data has shown continual money flows pouring into the group all month. 

Don’t wait for the media bull whistle to get excited about small-caps. By then the train will have left the station.

About the Author

Lucas Downey is the co-founder of MAPsignals research, which focuses on finding outlier stocks by following the big money. He is the instructor for options with Investopedia Academy and also posts videos often on his YouTube Channel, www.youtube.com/c/mapsignals.

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