Friday’s better-than-expected jobs numbers lit a fire under risk-on assets, including small-caps. This gives large-cap bulls another opportunity to go after February’s record highs.

May produced 139,000 non-farm jobs. This was better than expected on the surface, but the prior two months were revised lower by a combined 95,000. The job market is cooling but not collapsing. Thus far, employers are hanging on to their employees.

The risk going forward revolves around uncertainty owing to tariff size, breadth and duration. Under the Donald Trump administration, government workers are being laid off, and there is a reduction in immigration. This can crimp consumer spending in the second half.

In fact, the job market has been in deceleration for a while now (Chart 1). In the first five months this year, a monthly average of 124,000 non-farm jobs has been added. This compares with a monthly average of 168,000 in 2024, 216,000 in 2023 and 380,000 in 2022.

For now, May’s better-than-expected report has led equity investors to take on risk. Last Friday, the Russell 2000 rallied 1.7 percent to 2132, up 3.2 percent for the week. Small-caps inherently have a larger exposure to the domestic economy versus their large-cap cousins, and they tend to attract investments on signs of economic strength.

With this, the Russell 2000 has now reclaimed 2100, which has attracted both bulls and bears going back to January 2021; most recently, the support was breached early March. Just north of 2100 also lied a falling trendline from 25 November last year when a new all-time high of 2466 nudged past the prior high of 2459 from November 2021 (Chart 2).

Inability to break out of 2100 last week would have surely meant a breach of a rising trendline from April when the Russell 2000 bottomed at 1733; by then, it was down 29.7 percent from last November’s high.

Unless something comes out of left field and quickly saps investor confidence, small-cap bulls should be able to build on last week’s positive momentum in the sessions to come.

In this scenario, large-caps, too, stand to make further progress, particularly when they, too, broke out of the latest consolidation last week.

The S&P 500 tumbled 21.3 percent between 19 February when it reached a new intraday high of 6143 and 7 April when it bottomed at 4835. From that low through last Friday’s intraday high of 6017, it rallied 24.4 percent.

Going into last week, the large cap index traded sideways for several sessions. In the end, the back-and-forth action helped form a wedge (or a symmetrical triangle depending on how one draws). Last week, the index broke out (Chart 3), thanks to gains of 1.5 percent to 6000. February’s high is 2.5 percent away, and odds strongly favor the bulls here. They had a similar opportunity three weeks ago to rally toward that high but came up short.

A similar scenario is unfolding in the Nasdaq 100 – home to the largest 100 non-financial companies, including Microsoft (MSFT; $3.50 trillion market cap), Nvidia (NVDA; $3.46 trillion) and Apple (AAPL; $3.05 trillion).

The tech-heavy index plunged 25.6 percent between the February 19^th all-time high of 22223 and the April 7^th low of 16542. From that low through last week’s close of 21762, it is up 31.6 percent. More gains could come, as the February high is 2.1 percent away.

Going into last week, the Nasdaq 100 persistently got rejected for several sessions at straight-line resistance at 21400s. It was simultaneously caught in a wedge (Chart 4). The dual resistance got taken care of last week. This opens the door to a test of the February high. It is looking increasingly likely new highs will follow, although it remains to be seen if that momentum proves enduring or fleeting.

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