Small caps underperform as rate hike odds rise and breadth narrows

Demand thesis

decreasing

Why underpricing possible

partially recognized

Evidence

• IWM -4.81% over 20 days
• IWM vs SPY -3.07% over 20 days
• IWM's PCR Hits 2-Year High as Rate Hike Expectations

Risks

• A dovish Fed pivot or strong economic data could boost small caps.

Potential beneficiaries

Best currently accessible expressions

Portfolio action

WATCH — no company currently meets the trade threshold.

Invalidation

• If rate hike expectations diminish and small caps rally, the thesis is invalidated.