Recently, the US market has experienced severe volatility, with once-favored tech giants suffering heavy losses, while small-cap stocks and high-yield bonds unexpectedly strengthened, attracting widespread attention from investors regarding the market's direction.
Specifically, tech giants represented by the Nasdaq index and the &#34;Mag 7&#34; have been hit hard, with the Nasdaq seeing a weekly decline of 4.8%, the largest since 2022. Meanwhile, the small-cap Russell 2000 index has risen against the trend, poised to achieve its best monthly performance since 2024.
Some analysts believe that these phenomena highlight the possibility of the market undergoing a significant rotation of funds, but the sustainability of the small-cap stock rebound has also faced some doubts.
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<h2>Tech Stocks Fall Out of Favor, Small-Cap Stocks Surge, VIX Surges</h2>
Recently, the Nasdaq index saw its largest single-day decline since 2022, with the &#34;Mag 7&#34; index experiencing a weekly decline of 4.8%.
In stark contrast, the Russell 2000 small-cap stock index is expected to achieve its best monthly performance since 2024, while US high-yield bonds have recorded their longest continuous rise since 2020.
Amy Wu Silverman, Derivatives Strategy Director at RBC Capital Markets, pointed out:
<blockquote>
&#34;Market sentiment has indeed reached a turning point... Now you can see the demand for hedging against stocks like Nvidia.&#34;
</blockquote>
This assessment has been confirmed by multiple market indicators, such as:
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Tail risk contract costs seeing the largest increase this year
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VIX index rising to nearly 17, the highest level since April
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Investors heavily buying S&amp;P 500 index ETFs while selling tech stock derivatives
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</ol>
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Some analysts believe that political factors, inflation expectations, and industry rotation driven by inflation expectations can partially explain the change in market style:
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Political factors: Improvement in Trump's election prospects, with the market reacting positively to his potential policies
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Inflation expectations: June CPI lower than expected, strengthening rate cut expectations
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Industry rotation: Demand rising for economically sensitive industries as the market bets on the Fed having room to cut rates, reducing the burden on debt financing industries
</li>
</ol>
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<h2>Are Small-Cap Stocks a &#34;Safe Haven&#34;? Barclays Has a Different View</h2>
Against this backdrop, will small-cap stocks become a &#34;safe haven&#34; for funds?
In contrast to the prevailing market optimism towards small-cap stocks, Barclays Bank warns investors that historical data shows small-cap stocks often perform poorly after a rate cut cycle. Barclays wrote:
<blockquote>
Small-cap stocks have gained new favor on Wall Street, but there are not many factors supporting expectations for a surge in this sector.
</blockquote>
Barclays strategists believe that the Russell 2000 index, which tracks small-cap stocks, typically declines at the start of a rate cut. &#34;We believe this is contrary to the widespread view that the start of a rate cut cycle will bring sustained upward trends for small-cap stocks,&#34; the report stated
The report compared the performance of the Russell 2000 Index and the S&amp;P 500 Index during 13 interest rate cut cycles from 1980 to 2020. Although the report acknowledges different results, an overall downward trend was observed within 150 days before and after the first interest rate cut.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9ca6fb39-6fd8-4006-8517-ae8e5025994e.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9ca6fb39-6fd8-4006-8517-ae8e5025994e.png"/>
Currently, Wall Street's optimism towards small-cap stock trading is gradually increasing. Barclays believes that part of the reason is that the decline in interest rates may help alleviate debt burdens, but it may also signal an economic slowdown, which is more favorable for large-cap stocks.
Wall Street veteran Ed Yardeni also wrote this week that due to the lack of forward-looking earnings, revenue, and profit margins for small-cap stocks, this trading does not have support.
SoFi's Chief Investment Strategist Liz Young Thomas expressed doubts about the sustainability of small-cap stock trends:
<blockquote>
&#34;As the Fed begins an interest rate cut cycle, the market tends to be happy in the initial stages or even in the short term after the rate cut.
But if the rate cut cycle coincides with slowing economic data, disappointing earnings, or rapid PE compression, small-cap stocks may quickly lose momentum.&#34;
</blockquote>
<h2>Dow, Gold, and U.S. Treasuries are falling, but Bitcoin remains &#34;strong&#34;</h2>
If small-cap stocks are not an absolute safe haven, what about other assets? Let's review the performance of various assets this week:
1. Gold: Falling from historical highs, with a drop of over 2% on Friday, mainly affected by a stronger U.S. dollar and profit-taking
On Friday, gold fell by over 2%, mainly due to profit-taking and a stronger U.S. dollar. Alex Ebkarian, Chief Operating Officer of Allegiance Gold, stated:
<blockquote>
&#34;In addition to profit-taking, the market fell due to the narrative of a soft landing, which could put pressure on gold prices as investors may shift funds from safe-haven investments to higher-risk investments.&#34;
</blockquote>
Currently, the market is now expecting a 98% probability of a Fed rate cut in September. Chris Mancini, Deputy Portfolio Manager of the Gabelli Gold Fund, stated:
<blockquote>
&#34;If a weakening economy leads to government stimulus, especially infrastructure investment, then gold and industrial metals will rise simultaneously.&#34;
</blockquote>
2. U.S. Treasuries: Yields slightly rise as investors refocus on the timing of Fed rate cuts
This week, U.S. yields rose due to concerns that Trump's fiscal and trade policies would stimulate inflation and growth.
Specifically, the U.S. benchmark two-year Treasury yield rose by 6 basis points to 4.51%, while the 10-year Treasury yield rose to around 4.24%.
With Trump's rising approval ratings after the assassination attempt, PredictIt data shows a 63% chance of Trump winning in November. Currently, traders are refocusing on the possibility of the Fed cutting rates as early as September
Interchange Trading believes that a rate cut by the Federal Reserve in September is almost certain, with the implied yield pricing a 24 basis point cut. For the whole of 2024, traders expect two 25 basis point cuts and a probability of around 40% for a third cut.
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3. US Dollar: First Increase in Three Weeks
This week, the Bloomberg Dollar Spot Index rose by 0.5%, marking the first increase in three weeks.
Helen Given, a forex trader at Monex, stated:
<blockquote>
&#34;Regardless of the actual government situation, there are still investors who believe that the US dollar will continue to serve as a global currency and maintain its value in tense political situations.&#34;
</blockquote>
4. Bitcoin: Breaks $67,000 Against the Market, Reaching a New High in Over a Month
This week, Bitcoin broke above $67,000 for the first time in over a month. It is worth noting that part of Bitcoin's strength is attributed to the market's optimistic expectations of a potential Trump victory, believing it will create a more favorable regulatory environment for cryptocurrencies.
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Factors such as improved prospects for Trump's re-election and increased expectations of interest rate cuts have led to a shift in market style

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Nasdaq major adjustment, where to hide? Dow Jones, gold, US bonds are all falling, VIX surges, Bitcoin "still strong"