Whenever we talk Small Caps vs. Large Caps, someone always asks about the US dollar. Sometimes the best answer is, "I've found no relationship, no correlation, no consistency between the dollar's direction and the Large Cap/Small Cap decision." Here's the historic record.

We saw this once before, in 1999. The small cap S&P 600 Healthcare index has lagged the S&P 500 by 25 percentage points per year for 3 years. After 1999, small cap healthcare companies handily outperformed the broad market in all 3-year windows for the following generation.

Small caps are 20.5% cheaper than large caps on price-earnings ratio. The years that witnessed this discount are 1973, 1976, 1998, 2001 and 2020. Even investors who were early in 1973 and 1998 would have then witnessed two legendary small cap cycles: 1974-1981 and 1999-2018.

The S&P 100 index of megacaps divided by the Wilshire 5000 index of the total stock market is making its 3rd attempt at resistance levels set 28 years ago, on May 15, 1997. The news cycle at the time was a pivot into a Fed easing cycle. A failure here would be construed as a positive for small caps relative to large caps, as it would put stiff cement on this 1997 resistance.

Green ink everywhere. Get bulled up on stocks. The University of Michigan Sentiment Survey has hit a cycle low and bounced higher for two consecutive reports, just like in 1975, 1980, 1991, 2009, 2011 and 2022. The S&P 500 loves to splash green ink after such occurrences.

Great to see everyone is on board with “Federal Reserve independence” these days, what with LBJ screaming at and shoving William McChesney Martin into the wall at Johnson’s ranch, Reagan and Greenspan inventing the notorious Plunge Protection Team after the ’87 crash, Nixon giving Arthur Burns an earful on interest rates, and FDR turning regular people into criminals if they didn’t sell all their gold to the Fed for $20.67 per ounce. An “independent Federal Reserve” only lives in Fantasy Land.

The average of the US and China's Producer Price Indexes is -0.6%, and it has declined for five consecutive months. What producer prices do now, consumer prices do later. It looks like the annual rate of US inflation is headed downward.

Bad news for ECON BEARS: Japan's leading indicators have reflected higher. That is a highly cyclical economy that likes to drag the leading indicators of the US up with it after these turning points. It's just one month, so let's not take out the party hats or declare victory. Still, you should be well aware of it because any turn higher in the Conference Board LEI would surprise a ton of people this summer.

Two upticks in a row on US inflation, to +2.7% over the year, but I think we should fade that noise. Historically, such big, notable inflections drag the CPI lower. Downward is the direction into 2026, in my opinion.

ISM Services Employment at 47.2 is a red flag for the unemployment rate. They started collecting this data in 1997. We saw this thing crack 47 in April 2001 and January 2008, then again during Covid lockdowns. In this cycle, the first print of 47 or lower was December 2023. It rebounded to 53.9 a few months ago but has been weak ever since. No reaction yet from the unemployment rate.