IWM - iShares Russell 2000 ETF (Small Caps)

The Russell 2000 historically outperforms the S&P 500 and Nasdaq when starting from overvalued market conditions like today. Dollar cost averaging into IWM is presented as the best current opportunity given that the S&P 500 is near its most expensive valuation in history.

The video argues that small cap stocks (represented by the Russell 2000) are poised to benefit disproportionately from expected Federal Reserve rate cuts because small companies rely on floating-rate debt, and rate cuts will immediately reduce their borrowing costs and improve earnings. The host draws a parallel to the post-dot-com era when small caps rallied significantly relative to large caps.

The video presents a strong bullish thesis on small caps, arguing that institutional money is rotating into the Russell 2000 due to cheap valuations and anticipated rate cuts that will disproportionately benefit small companies with floating rate debt. The breakout above the 200-day SMA is presented as the start of a multi-year outperformance cycle.

Small caps with lots of debt tend to get destroyed in high interest rate environments

The creator highlights that the Russell 2000 is stalling horribly due to sensitivity to real debt costs, and that cracks in high-yield credit markets are particularly dangerous for small caps.

The Russell 2000 is showing a clear breakdown with the 20-day crossing over the 50-day in a bearish crossover. The host says the breakdown is 'clear as day' and 'right in front of our face.'

IWM tracks small-cap US companies that have significantly lagged the S&P 500 and NASDAQ. Small caps are much cheaper relative to history and earnings expectations. If the economy improves or interest rates fall, IWM could bounce back significantly. Low expectations mean you don't need perfection to win.

Small cap stocks should benefit significantly from lower interest rates because they borrow from banks at market rates. Felix explicitly mentions IWM as a sector winner in the rate-cut scenario.

Small caps are up 5% YTD while large caps are down. Every major bank is forecasting small cap outperformance in 2026 due to valuation discounts, rate cuts, and earnings growth.

Russell 2000 shows a failed breakout with a topping tail reversal indicator. Soloway warns that failed moves lead to the biggest moves in the opposite direction — a sharp downside. Small caps would be hit hardest in a recession.