Small caps are the hottest trade going in the stock market now and they surged

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Traders work on the floor of the New York Stock Exchange (NYSE) on July 11, 2024 in New York City.

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Small-cap stocks are on a tear right now as they took the baton from megacap technology shares last week to lead the bull market on hopes interest rate cuts will broaden out the economic recovery to their benefit.

The Russell 2000 index, the benchmark for the group, jumped 3.5% on Tuesday, hitting its highest level since January 2022. It marked the benchmark’s fifth time since 1979 that it has had a five-day streak of gains north of 1%, according to Bespoke Investment Group.

The small-cap benchmark is up 12.8% over the last one month, triple the gains in the S&P 500.

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Russell 2000

Fundstrat’s Tom Lee, who’s been correctly calling the stock market for the past few years, said the rally in small caps could last for more than two months, seeing dramatic gains for this cohort.

“We think this move could be something like 10 weeks and as much as 40%. I think it is just starting,” Lee, head of research at Fundstrat, said Monday on CNBC’s “Closing Bell: Overtime.”

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