New momentum for the U.S. stock bull market? Jefferies: Value stocks and small-cap stocks join the rally

According to Jefferies, the previous surge of large-cap growth stocks that has driven the U.S. stock market to new highs is about to gain new momentum. Strategists including Andrew Greenebaum and Chris Wood wrote in a report: "It feels like a crazy train, but the breadth is poor, while the depth is good." Their view is based on an analysis of the current proportion of stocks in the Russell 3000 index that are trading above their average price over the past 200 days. While only a slight majority of the overall measure covering U.S. stocks has met this standard, Greenebaum, Senior Vice President of Equity Research Product Management at Jefferies, expects this number to increase in the coming weeks as earnings forecasts are revised upward. In a report released on Saturday, Greenebaum wrote: "Current results are weighted towards large-cap stocks, so there is a lot of potential for change, but we note that the revisions for value stocks are very good. Moreover, the proportion of growth forecast revisions has actually reached a new higher level." Last week, the S&P 500 index rose every day, setting new highs each time, and has increased by 28% since the low on April 8. The Russell 2000 index has also risen significantly since then, but its gain so far in 2025 is only 1.2%, while the S&P 500 index has risen by 8.5%. The main reason for this disparity is the significant price increases of large tech companies like Microsoft (MSFT.US) and NVIDIA (NVDA.US). Greenebaum wrote: "The performance of stocks has not yet reached an ideal level, at least not for all stocks." In the Russell 3000 index, only 3.8% of stocks are at their 52-week high, while this proportion is 9.3% in the S&P 500 index. Data collected by Jefferies shows that among the constituents of the Russell 3000 index, 55% of stocks are above the 200-day moving average, below the long-term average, which suggests that the market will trend upward in major years like 2015 and 2023. He stated: "The scale of this rally is quite limited, and there seems to be a risk of expansion." Greenebaum noted that so far, the second-quarter earnings performance of large-cap stocks has been "quite impressive." However, he observed signs that these forecasts may help drive a shift in market dynamics. While the performance revisions for growth stocks look good, the upward momentum for value stocks is even stronger Greenebaum stated, "Since the beginning of the Federal Reserve's interest rate hike cycle, the adjustment of large-cap value stocks has never been so significant. Although value stocks and small-cap stocks have performed extremely poorly this year, we believe that the trend of these stocks is about to turn."