Small-caps can typically give traders amplified moves to the upside versus large-caps, but big tech specifically has been winning the market capitalization battle in the current rally.
More specifically, the Direxion Daily Technology Bull 3X ETF (TECL ) is up almost 120% versus the Direxion Daily Small Cap Bull 3X Shares (TNA ), which is eking out a 3.7% gain for the year. With the potential for a recession still looming, it could be that investors aren’t necessarily throwing caution to the wind.
Microsoft (MSFT), Apple (AAPL), and Nvidia (NVDA) are just a few names that comprise TECL. Those three have been heavy hitters in the market rally, improving after last year’s bearish turn for big tech amid lower profit forecasts and mass layoffs.
This year, the representative index of big tech, the Nasdaq-100, is up over 30% while the small-cap equivalent, the Russell 2000, is barely up 4.5%. A Wall Street Journal article also looked at the Russell 1000 versus the performance of the Russell 2000.
“The Russell 1000 index of large companies has gained 9.2% this year, beating the 0.7% advance of the small cap concentrated Russell 2000,” the article said. “That is the widest outperformance since 1997, when looking at years in which the Russell 1000 has been in positive territory through May 26, Dow Jones Market Data show.”
Is Big Tech's Rally Sustainable?
Macroeconomic headwinds continue to blow against the momentum of the market, including big tech. As such, many are wondering whether it can sustain its current rally.
“Trees don’t grow to the sky. It’s hard to imagine how they grow from here,” said George Patterson, chief investment officer at PGIM Quantitative Solutions, referring to large-cap tech stocks. “Yes, they have a lot of cash, but what do you do with it is the question.”
A paltry gain for TNA this year could give way to a more profound move to the upside. If so, the fund is worth keeping in the back pocket in case more amplified moves are ahead.
TNA tracks the Russell 2000 Index and seeks daily investment results equal to 300% of the daily performance of the index, while TECL also adds triple the exposure. Leveraged funds can provide traders with strategic exposure to niche corners of the market like small-caps, but should only be utilized by seasoned market players.
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