US Small Caps— UW on peaking macro tailwinds

Jun 22, 2026

This week's charts and research highlights from Variant Perception.

Chart of the Week

Russel 2000 outperformance vs S&P 500 is 2 standard deviations above trend. This is even as supportive liquidity conditions are peaking.

Back in Sep 2025, we turned more constructive on US small caps. This was due to better macro tailwinds from improving growth and anticipation of lower interest rates
Today, those same macro tailwinds are peaking and starting to reverse, while the small-cap equity rally is already stretched.
We recommend going underweight US small caps again.

There is also an active LPPL bubble exhaustion signal (i.e. SELL signal) on $IWM. It is present at weekly and daily frequencies.
When price bubbles or crashes approach exhaustion, a signature wave pattern emerges. We use log periodic power laws (LPPL) to find these patterns of peak euphoria and panic, flagging tactical price reversals.

We previously shifted to overweight value vs growth equities back in October 2025. Back then, there was a rare alignment for value outperformance across market behavior, macro and bottom-up fundamentals.
Today, these tailwinds have diminished but have NOT turned into headwinds yet.
On balance, we would stick with value stocks for now, but investors need to be aware of the upcoming Russell Value Index composition shift, which increases the weight of mega cap tech stocks