Small caps have surged to fresh highs dating back to the first quarter of 2022. The Russell 2000 ETF (IWM) has suddenly become a darling among sellside strategists and even buyside macro portfolio managers. Recall it was just two months ago when the group traded around 12 times next year’s earnings estimates. Jump ahead to today, and a 25% rally since October 27 leaves ‘the smalls’ closer to 15 times forward EPS forecasts. Is that a bargain? Maybe not quite as much.
Let’s focus on one key piece of the small-cap story. Retailers. Pull up a chart of the SPDR S&P Retail ETF (XRT), and you will see that the pattern since late 2020 appears remarkably similar to IWM's technical profile. The equal-weight basket of consumer equities peaked above $104 in Q4 2021 before plunging to support about 50% lower. Indeed, the mid-
50S
has proven to be support several times in the past 15 months. While XRT holds many large-cap names, its equal-weight construction methodology means it will act like a small or mid-cap ETF.
On the chart, I see clear resistance near the $75 mark. A breakout above that would portend a potential measured move price objective to the low to mid-$90s – just under its all-time high. For now, I am cautious on the fund since it has yet to break through the $75 line in the sand. I noticed, though, that in the fund's 18-year history, January has actually been a positive month, averaging a 2.2% total return with more tempered gains in February. March and April are the two best back-to-back months on the calendar.
Price comes first, however. So, I would like to see XRT jump above the $75 level. For now, ringing the register on retail stocks appears as the prudent play heading into 2024.
Let’s focus on one key piece of the small-cap story. Retailers. Pull up a chart of the SPDR S&P Retail ETF (XRT), and you will see that the pattern since late 2020 appears remarkably similar to IWM's technical profile. The equal-weight basket of consumer equities peaked above $104 in Q4 2021 before plunging to support about 50% lower. Indeed, the mid-
50S
has proven to be support several times in the past 15 months. While XRT holds many large-cap names, its equal-weight construction methodology means it will act like a small or mid-cap ETF. On the chart, I see clear resistance near the $75 mark. A breakout above that would portend a potential measured move price objective to the low to mid-$90s – just under its all-time high. For now, I am cautious on the fund since it has yet to break through the $75 line in the sand. I noticed, though, that in the fund's 18-year history, January has actually been a positive month, averaging a 2.2% total return with more tempered gains in February. March and April are the two best back-to-back months on the calendar.
Price comes first, however. So, I would like to see XRT jump above the $75 level. For now, ringing the register on retail stocks appears as the prudent play heading into 2024.