The dichotomy between large- and small-cap performance persisted into the second half of 2025. Small-caps trailed large-caps by nearly 8 percentage points year-to-date (YTD) through August 25, 2025, but technical indicators suggested this gap was closing.

• S&P 500 Index (large-caps): +9.48% YTD as of August 2025
• S&P 600 Small-Cap Index: +1.55% YTD as of August 2025

Small-cap breadth (lower chart) held near all-time highs, while price (upper chart) lagged, a pattern historically associated with sustained advances.

Small-cap underperformance was largely attributable to the higher interest rate environment, which makes smaller companies’ balance sheets less attractive, as they must borrow more frequently to grow and face less favorable debt terms than large, established companies.

1. Market Breadth: The Advance-Decline Line eclipsed its June 2021 former all-time high in October 2025 and has continued higher since then.
2. Demand Intensity: The percentage of smaller stocks contributing to index gains rose significantly. In addition, internal weakness as measured by the Percent of Small- and Mid-Caps 20% or More Below 52-Week Highs contracted. This means that Demand for the weakest stocks expanded, indicating that all strength levels of smaller stocks were engaged in the rally, with a healthy risk appetite apparent.
3. Relative Strength: Broke short-term downtrend vs. the S&P 500.

The full report includes detailed charts showing historical precedents from 2021 and 2023, plus specific-sector Power Rating analysis.

• Gradually build small-cap positions while remaining selective
• Monitor for breakouts to new highs in price, accompanied by strong technical indicators
• Focus on the five heaviest-weighted sectors (see below)
• Wait for clear confirmation of sustained breakouts before becoming more aggressive

The technical setup for small-caps is the most constructive it’s been in over a year. While confirmation through breakouts is still needed, the risk/reward for gradually building positions in the five key sectors (Financials, Industrials, Information Technology, Consumer Discretionary, and Health Care) is becoming increasingly attractive.

Lowry Research has provided institutional-grade technical analysis since 1938, tracking market breadth and demand indicators through multiple market cycles.

Discover what’s shaping the market narrative heading into 2026. CFRA Chief Investment Strategist Sam Stovall, CFP, projects 13.5% S&P 500 earnings growth for 2026—here’s his roadmap for navigating elevated valuations while capitalizing on Fed easing and post-election momentum.

As markets recently hit coordinated all-time highs, positioning for 2026 becomes critical. In this video, Stovall outlines how the market rebounded from early-2025 weakness and why he expects to see ongoing resilience. Topics covered explore the role of the Buffett Indicator, stretched P/E ratios, and shifting breadth, while highlighting the historical patterns that point to potential strength in the upcoming year. His analysis emphasizes the significance of the second year of a rate-cut cycle, the fourth year of the current bull market, and the strong performance trends that often follow midterm elections once uncertainty declines.

• S&P 500 earnings projected to rise ~13.5%
• S&P 500 year-end target of 7,400
• Continued support from easing monetary policy
• Improving GDP growth and moderating inflation pressures
• A potential path toward trimmed valuations as earnings strengthen

Stovall offers practical guidance on sector positioning, historical patterns in winner-vs-loser strategies, and what market signals may matter most in the months ahead. While volatility is likely to persist, Sam’s perspective suggests a continued—though more measured—path forward for U.S. equities as 2026 unfolds.

Download the slide deck here.

Global markets are facing renewed turbulence as U.S.-China trade tensions escalate, with President Trump announcing 100% tariffs on Chinese imports effective November 1, 2025, in response to Beijing’s expanded export controls on rare earth elements.

These tariffs, which now average 58%, represent historic trade barriers and have contributed to rising inflation pressures. Rare earth restrictions, critical to industries like semiconductors, auto manufacturing, and aerospace & defense, are adding supply chain risks, though CFRA remains optimistic about the semiconductors and aerospace sectors. Equity markets are experiencing stretched valuations, with the S&P 500 trading at a 41% premium to historical averages, and equity risk premiums at a 20-year low, signaling potential near-term volatility and a possible 5%-10% correction.

In his latest Macro Research report, “Liberation Groundhog Day,” Paul Beland, CFA, CFRA Global Head of Research, delivers a compelling analysis that explores:

• Global markets remain unsettled due to escalating U.S.-China trade tensions, with new 100% tariffs on Chinese imports starting November 1, 2025.
• CFRA expects a U.S.-China trade deal by early 2026 covering trade, technology, and tariffs.
• Near-term equity market volatility is likely, but longer-term fundamentals support the ongoing bull market.
• Stretched valuations and low equity risk premiums could lead to a 5%-10% market decline if tensions persist.

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