The Great Rotation Is From Small Caps To Large Caps

The Great Rotation won’t be from stocks to bonds, say investors on It will be from small and mid-cap stocks to established, multi-billion dollar companies. And the trading action so far this week supports their view.

The Great Re-Rotation is from small and mid caps to the giants. $SPX from $RUT and $MID $SPY $IWM $MDY

— David Durand (@SunAndStorm) Mar. 26 at 02:14 PM

The iShares Russell 2000, $IWM, an ETF of companies with market caps under $2 Billion, is down about 3% in the past five days. It fell an additional 1.4% intra day. Meanwhile, the Dow Jones Industrial Average, $DIA, is up about 0.8% over the same time period.

Weakness in higher beta names persists as $IWM, $QQQ have broken down from small tops. Big move coming as volatility bands pinch. $SPY, $SPX

— Mark Arbeter CMT (@MarkArbeter) Mar. 26 at 02:12 PM

The Nasdaq has fared much worse than the Dow. It is down more than 2% in the past five days. But much of the losses have come from younger, smaller companies. Hundred-billion dollar tech giants such as IBM, $IBM, Cisco, $CSCO, Apple, $AAPL, Microsoft, $MSFT have fared relatively well, posting gains of more than a percent each over the same time period.

Investors say the reason for the rotation is valuation. Though investors are still willing to bet on stocks and global economic growth, they fear the valuations of small cap names with relatively little or no profits have become outsized due over-excitement around the potential of new technologies, mobile apps, and medications. Perhaps the greatest evidence of this new concern is the double-digit drop in King, $KING, shares on the first day of trading.

$KING sad what happened here. $BOX is up next and the latter is admittedly non-profitable!! The luster of tech IPOs is fading fast/gone!

— theSawse (@theSawse) Mar. 26 at 02:48 PM

A bet on large, established companies is seen as safer play for investors who believe the global economy will continue to steadily grow.

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