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Writer's pictureRealFacts Editorial Team

Market Rotation Sends Small Cap Stocks Soaring


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Before the market opened on Thursday, June’s consumer price index (CPI) showed that core inflation cooled more than was expected. Jed Graham, Investors Business Daily author reported, “The overall consumer price index unexpectedly dipped 0.1% on the month vs. +0.1% forecasts. The 12-month CPI inflation rate fell to 3% from 3.3% in May. The core CPI, which strips out volatile food and energy prices, rose just 0.1% vs. May levels, cooler than 0.2% forecasts. The 3.3% 12-month core CPI inflation rate, down from May's 3.4%, undershot 3.5% expectations.” This report is in the wake of CPI hitting a 40-year-high of 6.6% in September 2022. On an unrounded basis, the core CPI rose by just 0.06%, marking the smallest increase since January 2021.


The unexpected cooling of core CPI caused a significant market rotation away from large tech stocks and into smaller cap stocks. The Russell 2000, which tracks smaller cap stocks, gained over 3.5%, while the S&P 500 fell nearly 1% and the NASDAQ dropped almost 2%. This shift is driven by increased investor confidence that a rate cut will come quickly, which would benefit smaller-cap stocks more substantially than larger ones. Smaller companies rely more heavily on debt financing, so lower interest rates would significantly enhance their profitability. Some major tech companies experienced strong sell-offs, including Alphabet (GOOGL) down 2.9%, Nvidia (NVDA) down 5.6%, Tesla (TSLA) down nearly 8.5%, Microsoft (MSFT) down 2.5%, and Amazon (AMZN) down 2.4%.

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