Yesterday, I sat down with veteran investor Lou Basenese to break down what’s really happening beneath the surface of this market — and the takeaway is clear:
Leadership is shifting.
While most headlines remain focused on the S&P 500 hovering near its highs and the same mega-cap names dominating attention, a more important story is unfolding in a part of the market investors have largely ignored for more than a year:
Small-cap stocks are starting to lead.
And historically, when small caps begin to outperform, it matters.
The Market Pullback Isn’t the Real Story
Markets don’t move in straight lines. Pullbacks are normal — and often healthy. They can relieve overbought conditions and create better entry points.
The real question isn’t whether the market dipped. It’s what the fundamentals are doing underneath.
Right now, those fundamentals remain firm.
Corporate earnings continue to surprise to the upside, and over the past year, the majority of market gains have come from real earnings growth, not simply investors paying higher multiples.
Looking ahead, S&P 500 earnings are expected to climb meaningfully over the next several years. If that trajectory holds, stock prices have a fundamental reason to trend higher over time.
Why Small Caps Are Outperforming
Small-cap and micro-cap stocks have started to outperform large-cap and mega-cap names — a potential signal that market leadership is broadening out.
This matters for several reasons:
Small caps tend to benefit more from domestic economic strength
They often perform best earlier in sustained expansion phases
Leadership rotation typically occurs as investor confidence improves
Historically, broader participation has been a healthy sign, not a warning sign, for bull markets.
How Investors Can Position Now
The market story right now isn’t about fear.
It’s about transition.
Earnings are holding up. Productivity is improving. Leadership is broadening — and small caps are stepping forward.
That combination has historically aligned far more with opportunity than risk.
If you want the full breakdown, the data behind these trends, and the specific names we discussed, watch the latest episode of Market Insights.
Here’s to your future,
Matt McCall
Founder, NXT Wave Research
