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

By Steve Goldstein

Price action now paired with better fundamentals, one strategist says

Small-cap stocks finally burst out of a trading range.

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.

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-caps 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-caps 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 of the One Big Beautiful Bill that will help more leveraged and capital-intensive companies.

But at the end of the day, what small-caps 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, S&P 500 futures (ES00) slipped. Bitcoin (more below) was in the spotlight as it tumbled from last week's levels.

   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 

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.

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

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The chart

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 

Random reads

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In Mexico, a taco festival broke three records, including the world's largest frying pan some 23 feet in diameter.

-Steve Goldstein

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August 25, 2025 06:52 ET (10:52 GMT)

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