Small-cap stocks rebound strongly, and the bull market in US stocks is expected to continue.

Zhitong App has learned that while the Pro UltrPro Shrt S&Pro 500 continues to set new closing highs, the recent performance of small-cap stocks, particularly the iShares Russell 2000, has attracted attention. This is a healthy signal that investors are looking beyond the "Big Seven" stocks in the US market and participating in this bull market.

Small-cap stocks in the US market are closely related to domestic economic activities, and they still have a long way to go to reach the historical high set in 2021. If this rotation towards small-cap stocks continues, it will send a signal that investors are increasingly confident in the resilience of the economy, especially as the Federal Reserve discusses when to start easing monetary policy.

Since the low point of the bear market, the outstanding performance of large-cap technology stocks in the major US stock indices has clearly attracted investors and contributed to most of the gains in this bull market. According to a global fund manager survey conducted by Bank of America in January, market participants believe that going long on the "Big Seven" stocks in the US market is currently the most crowded trade. Investors who are bearish on the US market claim that the low market breadth (i.e., gains mainly contributed by a few stocks) is the fatal weakness of the bull market, and some still argue that this rebound is a bear market rally.

However, the situation has changed significantly since October last year. As other stocks outside of the few large-cap technology stocks also rebounded, market breadth has significantly improved. In fact, since the low point in October last year, the performance of iShares Russell 2000 has been better than that of Pro UltrPro Shrt S&Pro 500, and the performance of the equal-weighted Pro UltrPro Shrt S&Pro 500 is also comparable.

In addition, the price-to-earnings ratio of the equal-weighted Pro UltrPro Shrt S&Pro 500, excluding the "Big Seven" stocks, is close to 16 times, much lower than the 20 times price-to-earnings ratio of the Pro UltrPro Shrt S&Pro 500. This also makes the argument in the market that stocks are too expensive at current levels and should not be bought seem somewhat weak. Therefore, for investors, this bull market seems to have many opportunities. And for most stocks, this bull market may have just begun.

However, the stock market may face a pause or even a pullback before resuming its upward trend. Nevertheless, the "Turn-Of-Year" barometer by technical analyst Wayne Whaley has released a buy signal. This indicator tracks the performance of Pro UltrPro Shrt S&Pro 500 from November 19th to January 19th of the following year. When the index has a gain of more than 3% during this period, it gives a buy signal. Data shows that since 1950, this indicator has released 37 buy signals, of which 35 have generated positive returns in the next 12 months, with an average increase of 16.5%.