The S&P 500 hit new all time highs while smaller stocks remain well off highs. What's next for both?
Several major indices have notched all-time highs over the last week as the core of the market continues to flex its muscles from a technical perspective. SPX was the latest to do so, punching to uncharted territory with action late last week before continuing higher on 6/30 to start an abbreviated trading week. The core of the market (as defined by the Asset Class Group Scores page) continues to rank highly after a hiccup in April, outscoring nearly 94% of the other 133 groups on the page. All of this confirms an idea most of us are quite familiar with at this point… the technical stature of the S&P 500 is still quite strong.
One area that hasn’t been talked about that much in recent research has been small caps. The group’s inability to sustain any semblance of upside action leaves a bad taste in trend followers’ mouths… and for good reason. Somewhat convincing upside action in late 2024 was then followed up with a swift breakdown throughout 2025, seeing RUT down nearly 24% at its worst on its default chart back in April of this year. Since then, the Russell 2000 has broken back into a positive trend and posted an impressive string of six buy signals on its chart… but is still in the red for the year and the broader small cap group still scores below NDW’s technically acceptable 3.0 score threshold.
Still nearly 13% off all-time highs as of 6/30/2025, the analyst team wanted to explore the idea of a “catch-up trade” for small-caps. Said otherwise, does the “a rising tide lifts all ships” saying apply to SPX & RUT? To answer this question, we isolated instances (excluding one-month clusters) where the S&P 500 printed a new all-time high while the Russell 2000 was 10% (or more) off its own respective all-time high. From there, we computed forward returns for the 18 (excluding 2025) instances dating back to 1980. The table is included below. Note that these datapoints use closing prices only.
There are a few things to note after digesting the data. First are foremost, “typical” returns for both SPX and RUT across the timeframes are strong, hitting slightly above long-run averages for both indices. Next, average returns for RUT outpace SPX across the dataset… albeit somewhat marginally. As you would expect, returns for small caps are also less consistent, seeing the range between high and low values wider across the board.
Unfortunately, the returns don’t seem to provide a conclusive answer either way for our initial question of whether small caps are due for a bit of catch up throughout the back half of 2025. Despite this, there is perhaps an unintentional finding: the idea that all-time highs for SPX without participation from small caps hasn’t historically been a roadblock for continued upside action as SPX looks to improve on its year.
