Borderline!
While the S&P 500 and Nasdaq 100 continue to levitate, seemingly unencumbered by gravity, many of the subindexes we follow are running into areas that have challenged them in the past. Let's dig in...
On Tuesday, I tried to provide a framework of the economic priorities and views of the different political groups in the US.
One of the comments I received was that I didn’t emphasize or highlight the pro-growth aspects of the current MAGA policies.
It should be noted that it is not just the One Big Beautiful Bill that is pro-growth.
Trump “encouraged” Germany that it, too, should spend (here) at a time when China and Japan have also been providing fiscal stimulus.
In addition, Trump has lowered regulations that had led to an opening of the IPO market in the US (Circle, Coreweave, Voyager and Chime have all been high profile, successful IPOs this year) and the M&A market seems to be thawing (volume is up 27% year over year here).
Combined with the continually increasing data center spend (Google / Alphabet announced an increase in capex during its earnings call last night), this has created “animal spirits” in global equity markets.
Despite these “animal spirits,” our view is that the US equity market is due for a pause / pullback.
While the S&P 500 and Nasdaq 100 are hitting new highs, the Dow Jones Industrials Index (we showed on Tuesday chart 2 here), the Russell 2000 and the Equal Weight S&P 500 (charts 1 and 2, respectively below) are all hitting levels that have been battlegrounds in the past.
“I've given all I can;
'Cause you got the best of me;
Borderline!
Feels like I'm going to lose my mind.”
1. Small Caps: At a Battlezone Level!
Source: TradingView. Through year-to-date 2025.
The chart above shows the Russell 2000 Small Cap ETF (ticker: IWM).
At the beginning of the year, many strategists, recognizing the likelihood of a Trump tax cut and deregulation expected Small Caps to outperform.
Small Caps peaked at the time of the 2024 US Presidential election and have generally underperformed ever since.
Two months ago, when we last showed this chart (here), we highlighted the potential target of $244.
While we still see $244 as a likely destination, we expect a battle (pause / pullback) at the $227 level where the Russell 2000 Small Cap ETF finds itself now.
(This is not a recommendation to buy or sell any security and is not investment advice. Past performance is not indicative of future results. Please do your own research and due diligence).
2. The Equal Weight S&P 500: At a Battlezone Level!
Source: TradingView. Through year-to-date 2025.
The chart above shows the Equal Weight S&P 500 ETF (ticker: RSP).
Unlike the S&P 500 and Nasdaq 100, the Equal Weight S&P 500 ETF has not surpassed its all-time (November) high and is just starting to battle it now.
While we believe that the eventual likelihood is that the Equal Weight S&P 500 ETF will surpass its November 2024 high, the current level will likely present a battle.
(Past performance is not indicative of future results. This is not a recommendation to buy or sell any security and is not investment advice. Please do your own due diligence).
3. The Mag 7: At a Battlezone Level
Source: TradingView. Through year-to-date 2025.
The chart above shows the Magnificent 7 ETF (ticker: MAGS).
The Magnificent 7 - as a group - has rallied back to its December 2024 peak and like the Dow Industrials, Russell 2000 Small Caps and Equal Weight S&P 500 is at a level that has acted as a barrier in the past.
We believe a pause and / or pullback from current levels is likely.
(Past performance is not indicative of future results. This is not a recommendation to buy or sell any security and is not investment advice. Please do your own research and due diligence).
4. The VIX is at a Level that has Acted as a Floor in the Past
Source: TradingView. Through year-to-date 2025.
The chart above shows the VIX Volatility Index.
The VIX has - as can be seen on the chart - experienced lower levels, however, the VIX has bounced from the current level several times over the past year.
Typically, when the VIX moves higher, equities move lower.
(Past performance is not indicative of further results. This is not a recommendation to buy or sell any security and is not investment advice. Please do your own due diligence).
5. US Equity Outperformance Remains Intact
Source: TradingView. Through year-to-date 2025.
The chart above shows the S&P 500 relative to the MSCI All Country World ex-US ETF (ticker: ACWX) from 2009.
We always want to identify major “regime shifts” across markets and we have been watching this chart closely to determine whether the US equity outperformance since 2009 has come to an end.
When we last showed the chart in early May (chart 5 here), we may have been too quick to consider that the global equity environment had changed.
Since that time, US equities have outperformed and have recaptured their long-term uptrend channel. We will see if it can continue - they seem to be on the borderline.
Have a great weekend.
(Past performance is not indicative of future results. This is not a recommendation to buy or sell any security and is not investment advice. Please do your own research and due diligence).