🍔The Year-End Chase is On

Small caps continue to rally, leaving investors in the dust

Small cap stocks experienced a huge rebound this week, following on from last week’s blistering rally. After selling off for most of November, the character of the market has changed.

The AI bubble is still growing. Even the US government is buying into it now. But there will be new winners and losers minted going forward.

The year-end chase is in full force. Suddenly, everyone who was turning cautious and protecting the year’s gains are forced to buy back into the market. This is the type of whipsaw that the final weeks of the year tend to provide.

The flows this week were positive as hedge funds, mutual funds, and systematic funds flipped back to buying. We said last week that junk tech stocks would soon follow the rally, and that’s exactly what they did.

SPX is pressing into highs and the people who hedged or sold in November are panicking. They are staring at a chart with no pullbacks to let them back into the market. Luckily for them there may be a pullback coming next week, as we describe in today’s letter, but even that one will be short-lived.

The rest of this article is for premium members. Today’s post covers:

• US government making a push into AI and robotics

• The next Fed Chair

• Macro data and the upcoming hawkish cut

• Google is winning the AI race

• Technicals and our portfolio