Small-caps are currently experiencing their third-longest period without reaching all-time highs. So far, it has lasted 808 trading days, and they are still in a 6.7% drawdown.
Here’s the chart:
(right-click and open image in new tab to zoom in)
Let's break down what the chart shows:
The dark blue line in the top is the S&P 500 index price.
The gray line in the top panel is the all-time high level.
The red line in the middle shows the all-time high drawdown in small caps.
The light blue line in the bottom shows the consecutive trading days since we last saw an all-time high in small caps.
The Takeaway: Is 2025 the year we see all-time highs in small caps? Maybe.
But right now, Small-caps are currently trading below their previous cycle highs from 2021 and have been for the past 808 trading days.
Small-cap stocks are often under-owned and underappreciated, leading to low overall expectations for the riskiest stocks in the market. By design, small-cap indexes regularly replace their best-performing stocks, which results in underperformance.
So does this current consolidation in small caps need to resolve higher for the overall bull market to continue?
Small-caps aren't required to outperform in order for the overall stock market to be in a healthy environment. However, a breakout of this three-year consolidation and a higher level of participation will be very supportive of the overall bull market's next leg higher.
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