With the S&P 500 back in positive territory after April’s tariff tantrum, small-caps have yet to catch up. When the uptrend starts or stalls, Direxion Investments has a pair of leveraged/inverse funds to ponder for small-cap plays.
In today’s environment dominated by market uncertainty, large-caps continue to be the default choice. Interest rates are still relatively high, making it difficult for small-cap companies to service their debt burdens to keep afloat. That said, rate cuts could certainly help their bullish case. That could be countered by recession forecasts, proving the notion that traders should be ready for anything.
As the large-cap recovery continues, investors may be more apt to decrease their concentration in large-cap names and reconsider small-caps. This broadening of investment horizons could be a win/win for small-caps.
“In our view, small-caps are in a sweet spot and could benefit from declining market concentration,” said Alliance Bernstein, who cited in the chart below that market broadening could work in favor of small-caps.
While small-cap companies are offering value at the current levels, there’s no guarantee they’ll eventually head higher. That said, having the ability to trade both bullishness and bearishness will allow traders the ability to profit regardless of what direction small-caps go.
2 Small-Cap Tools of the Trade
With small-caps looking to recover following April’s tariff sell-off, current prices could be offering investors and traders plenty of value. It’s an area of value that seasoned market experts haven’t seen in some time.
“You’d have to go back 20, 25 years to see the same relative-type valuation opportunity that we’re seeing today,” said Francis Gannon, co-chief investment officer and managing director at Royce Investment Partners. “We think you will actually see some significant growth in the small-cap space over the next, really, two years.”
When an uptrend gains momentum, traders can ride the bullish wave with the Direxion Daily Small Cap Bull 3X Shares (TNA ). It offers triple the exposure to the Russell 2000 index. That allows traders to maximize their profits if small-cap equities continue to show more upside through the rest of 2025.
Conversely, if small-caps falter due to more trade news — or worse, a recession — traders can use the Direxion Daily Small Cap Bear 3X Shares (TZA ). It takes the opposite direction of TNA to give traders more flexibility and tactical exposure to the Russell 2000. And that’s regardless of whether it heads up — or in the case of this particular fund — when it heads down.
For more news, information, and analysis, visit the Leveraged & Inverse Channel.
