Indices See Healthy Bounce, but Speculative Action in Small Caps Is Red Hot
Stocks rebounded as investors beat the bushes to find the next big mover.
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Stocks rebounded on Monday after some aggressive selling on Friday when President Trump threatened massive tariffs on China. Trump softened his tone over the weekend, and the S&P 500 recovered with a gain of 1.5% after falling 2.7% on Friday. Breadth was very good, with around 72% of stocks in positive territory.
However, the real story was under the surface. The Russell 2000 (IWM) jumped 2.7% after falling 3% on Friday, but there was a very long list of individual stocks with huge moves. My list of names that gained more than 20% was the longest I have ever seen.
Many of the names benefited from an announcement by JPMorgan Chase (JPM) that it planned to dedicate $1.5 trillion over 10 years to a security and resiliency initiative to boost critical industries. This included rare earth, nuclear power, defense, energy and strategic technologies. Stocks in those sectors ripped higher along with semiconductors and other AI names. One example of the big gains was Critical Metals (CRML), which gained 54%. Another was Rigetti Computing, which jumped 26%.
This was bubbly action, but since it was not reflected in the major indices, there wasn’t much talk about it.
These big moves in secondary stocks will create some FOMO among speculative traders who are beating the bushes to find the next big mover. This is very much like the internet action back in 2000. It can last for a while and can go much longer than expected.
While this under-the-surface action is very strong, the bounce in the major indices wasn’t nearly as impressive. The S&P 500 recovered about half of its losses, but there appeared to be some lack of conviction. We’ll see if the bulls can generate more follow-through, but bank earnings reports are on the horizon, and the reaction there will determine what happens next.
Overall, it is a very healthy market, but the hot pockets of speculative action will cause some concern among the folks who keep talking about bubbles.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
