The S&P 500 opened at a record high before stabilizing and finished the day with a 0.5% gain. The Nasdaq Composite and the Dow Jones Industrial Average (DJIA) also hit record highs, closing with increases of 1.0% and 0.3%, respectively. In noteworthy performances, the Russell 2000 jumped by 2.4%, surpassing its 2024 high and approaching its all-time high from 2021. Meanwhile, the Toronto TSX Composite Index also rose by 0.5%.

Large Cap Exhaustion

Although the S&P 500 reached a record, it has been moving sideways, indicating signs of exhaustion among large-cap stocks. The CBOE Volatility Index (VIX) shows this calmness, closing at 11.8, a level we haven’t held since before the 2024 election cycle. This low volatility presents a chance to sell options, using strategies like iron condors or covered calls on existing stocks to earn income while momentum stalls. The big rally in the Russell 2000 is significant, hinting at a shift towards smaller, domestically-focused companies. Recent data reveals that weekly investments in the IWM small-cap ETF hit their highest level in 2025, exceeding $4 billion last week. Derivative traders might consider buying call spreads on the IWM to capture potential gains while managing risk. We are now testing the Russell 2000’s all-time high from November 2021, a level that has acted as strong resistance for years. A decisive move above this point could signal further growth for the broader market, driven by more than just a few large-cap stocks. Historically, such broad rallies are more sustainable than those led by a small number of stocks.

Market Catalysts

This shift is gaining momentum thanks to how the market is interpreting recent economic data and signals from the Federal Reserve. After last week’s inflation report came in a bit lower than expected, Fed funds futures are now suggesting a 70% chance of a rate cut by the end of the year. Lower borrowing costs could serve as a strong catalyst for smaller companies, which are more sensitive to interest rates. Create your live VT Markets account and start trading now.

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