Is the US Small-Cap Rally Durable? Weekly Roundup

2025-09-22

U.S. equities set fresh records, with the S&P 500, Nasdaq, and Dow at all‑time highs as the Russell 2000 joined with a new peak following the Fed's first rate cut since December. Long yields edged higher into the week's close, moderating multiple expansion even as breadth improved across cyclicals and rate‑sensitives.

The cross‑asset tone reflected a reassessment of the policy signal rather than a one‑way shift in risk appetite.

US Small-Cap Leadership

Traders watching the US indices hitting new highs

The Russell 2000's new high sharpened the debate over rotation durability beyond mega‑caps as easier policy lowered financing headwinds for domestically focused names.

Confirmation now hinges on stable real yields and evidence of improving demand in high‑frequency data, with PMIs and core PCE the cleanest near‑term tests.

A firmer dollar or renewed rise in long yields would likely narrow breadth and redirect flows toward defensives. [1]

Central Bank Signals

Federal Reserve: target range lowered to 4.00–4.25% with a data‑dependent stance and updated operating rates, anchoring front‑end pricing into quarter‑end.
Bank of England: Bank Rate held at 4% with an updated gilt QT program that keeps sterling sensitive to growth and inflation surprises.
Bank of Japan: policy held at 0.5% with a split vote and plans to unwind ETF and J‑REIT holdings, signalling incremental normalisation and tightening local financial conditions.

FX and Commodities Moves

The dollar index erased early losses and ended broadly steadier as markets faded an initial dovish read of the Fed signal.
The yen firmed on BoJ normalisation cues, with cross‑asset spillovers via global rates and regional equities.
Brent crude slipped 0.46% on the week to settle near 66.68 for November delivery, pointing to ongoing demand caution. [2]
Gold drew support into the Fed as the dollar softened, before retracing with the late‑week dollar recovery.

Week Ahead Macro Data

Date	Region	Release	Why It Matters
22 Sep	Global	Flash PMIs (US, Eurozone, UK, Japan)	First read on September growth and price pressures that will steer rate expectations and equity breadth.
24–26 Sep	US	Consumer Confidence, New and Pending Home Sales	Demand, housing activity, and labour perceptions feed into earnings resilience and risk appetite.
25 Sep	US	Durable Goods Orders	A gauge of core capex momentum and inventory dynamics into Q4.
26 Sep	US	Core PCE Price Index	The Fed's preferred inflation measure and the week's primary policy input for front-end rates.
26 Sep	US	Q2 GDP Revision	A checkpoint on growth composition that informs productivity and margin narratives.

Week Ahead Earnings

Date	Company	Ticker	Theme
23 Sep	Micron Technology	MU	Memory cycle, AI supply chain, and capex tone as a tech bellwether for risk appetite.
23 Sep	AutoZone	AZO	US consumer spending mix and elasticity in auto aftermarket demand.
24 Sep	Stitch Fix	SFIX	Discretionary demand and inventory discipline for smaller e-commerce.
25 Sep	Accenture	ACN	Enterprise tech budgets and the AI services pipeline as a proxy for IT spend.
25 Sep	Costco Wholesale	COST	Traffic, membership, and pricing as a real-time read on US consumer resilience.
25 Sep	CarMax	KMX	Used car pricing, credit availability, and demand elasticity.

Note: Nike's quarterly results are slated for the following Tuesday after the close, providing an additional consumer read just beyond this week's window.

Risk Radar

Supermarket on the left showing PCE, and a factory line on the right showing PMI

Upside inflation surprise in core PCE or firmer PMI price indices would extend the late‑week rise in yields and the dollar, pressuring high beta equities and duration plays.
Softer inflation or cooler PMI prices would reinforce the small‑cap case via cheaper financing and improved domestic demand expectations.
Policy communications from the BoE and the next BoJ steps on asset holdings may stir cross‑asset volatility through sterling and yen channels.
Trade and tariff dynamics could skew manufacturing momentum and margins, affecting PMI reads and corporate guidance. [3]

Bottom Line

The small‑cap rally has a plausible footing in easier policy and improving breadth, but durability now rests on a friendly mix of PMIs, core PCE, and contained long yields in the coming days. Watch Micron and Costco for confirmation that earnings and demand can sustain participation beyond a post‑Fed relief phase.

Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. 