Small-cap stocks surged on Friday — and now, they’ve finally busted out of a range

Small-cap stocks finally burst out of a trading range. - Getty Images/iStockphoto

The reverberations from Federal Reserve Chair Jerome Powell’s strong hint of a September rate cut was still being felt as the last plane out of Jackson Hole departed.

Few assets were rewarded as much as beleaguered U.S. small-caps, with the Russell 2000 RUT surging 4% on Friday.

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Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, says the move was notable not for the magnitude of the gain, but because the index finally moved out of a long-held range it’s been mired in relative to the S&P 500 SPX.

“While it wouldn’t surprise us if Friday’s move turns out to be a brief short-covering event that fizzles out, we also wouldn’t be surprised to see it run a little bit longer given the positioning dynamics and desire by U.S. equity market participants to rotate and for leadership to broaden out beyond the Mag 7 (as skepticism about the AI theme, which has powered the mega caps, returned in force last week),” she writes.

If small-cap stocks do keep running, Russell 2000 price-to-earnings ratios will be important to watch to gauge when this trade may top out, she adds. At 16.3 times earnings ahead of the Powell speech, important milestones will be the January high of 17.5, the November 2024 high of 18 and the January 2021 high of 20.-

Keith Lerner, co-chief investment officer at Truist Wealth, upgraded U.S. small-cap stocks from less attractive to neutral. He said the quality of the price action in small caps is different because it’s supported by rising earnings trends. He notes not just the potential for Fed rate cuts, but also the interest-rate deductibility provisions of the One Big Beautiful Bill that will help more leveraged and capital-intensive companies.

But at the end of the day, what small-cap stocks need is a strong economy. Lending hope to that view is Nancy Lazar, chief global economist at Piper Sandler, who says the economy will escape a current soft patch.

She said the economy is only now starting to get the benefit of last year’s interest-rate cuts from the Fed, and combined with what she calls the “big beautiful policy mix” — not just the tax-cut bill but also deregulation — the economy will reaccelerate in 2026, possibly leading to a growth rate of 3%.

The market-

Following Friday’s 846-point blue-chip rally, U.S. stocks SPX COMP opened lower. Bitcoin BTCUSD (more below) was in the spotlight as it tumbled from last week’s levels.

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Key asset performance Last 5d 1m YTD 1y S&P 500 6466.91 0.27% 1.23% 9.95% 14.77% Nasdaq Composite 21,496.53 -0.58% 1.84% 11.32% 20.24% 10-year Treasury 4.28 -6.00 -13.70 -29.60 46.20 Gold 3410.8 0.97% 2.92% 29.23% 33.57% Oil 63.88 2.08% -4.63% -11.12% -17.21% Data: MarketWatch. Treasury yields change expressed in basis points

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The buzz

Intel INTC after markets closed on Friday announced the terms of the U.S. government’s 10% purchase, saying the deal came at a 17% discount to the close though without board representation.

Keurig Dr Pepper KDP agreed to buy JDE Peet’s in an $18 billion cross-border deal, with plans to spin off its coffee business from the beverage business.

Shares of furniture sellers including RH RH and Wayfair W slipped after President Donald Trump said there would be tariffs on furniture.

New-home sales is the day’s economic release, after a weekend of central bank chitchat at Jackson Hole, Wyo.

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The big market move came over the weekend, when a bitcoin whale dumped $2.7 billion worth of the cryptocurrency on a Sunday, having not touched the account for five years. This account still holds over 154,000 bitcoin.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

Ticker Security name NVDA Nvidia TSLA Tesla NIO Nio OPEN Opendoor Technologies PLTR Palantir Technologies GME GameStop TSM Taiwan Semiconductor Manufacturing AMD Advanced Micro Devices AAPL Apple AMZN Amazon.com

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