IWM - iShares Russell 2000 ETF (Small Caps)

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.

Small caps are the first beneficiaries of the $4.7 trillion money influx. Felix shows IWM breaking through resistance levels and looks bullish with institutional indicators pointing higher.

Small caps historically outperform during tax cut cycles. In late 2016, small caps went up 15% vs 6% for large caps. Wave 1 front-run phase favors small caps.

Likes small caps here; always good to have a mix.