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Some positive news in the market. The risk on rotation is here. You're seeing positive movement in the Russell 2000, up over 10% here in the last five days. That is the biggest streak of gains for the small cap index since April of 2020. So certainly seen a lot of upside movement in the small cap sector. And Sean and I were discussing how we're seeing the Nasdaq in particular, uh, underperforming the Russell 2000. So joining us to discuss the room that we have to run for the small caps rally here, we've got Chris Versanti, MAI Capital Management Chief Equity Strategist. Chris, thanks so much for getting in here with us. I really appreciate it. So this small cap rally, I just want to get your take on what exactly is driving it. We've been talking a lot about the cash on the sidelines, for example. Is this investors looking for a place that is accurately priced to be putting some of that money to work? What is it? What's driving?

Hey, thanks for having me. I think you're exactly right. I wouldn't even say accurately priced. I'd say underpriced. Boy, we have to go back more than a generation to see such a dislocation between large cap and small cap. And there's really never a certain reason why the reversal happens, but it comes when it does come, it comes fast and furious. And we're seeing that. So for example, the Russell 2000 index, kind of the the benchmark small cap index, it's had its biggest move in terms of standard deviations that we've seen in more than 30 years over the last week. So this is now, it may end next week, who knows, but I got to tell you, I've been doing this a long time and it's a very convincing reversal.

Chris, when you talk about the fact that it's a convincing reversal, I guess so we probably think that this trade has a little bit of legs. What do you think that upside then potentially looks like as we do see this further rotation if we were to get fed rate cuts? I guess how critical is that part of the story for this rally that we see?

Sure. I don't think the fed rate cuts are that critical. In fact, I think, Shauna, that it would scare me if the Fed cut rates. You know, everybody thinks that a fed rate cut is is like you finished your workout at the gym and you're feeling good. It's not that way at all. What happens is the Fed cuts rates not to give you a break, but because bad things are starting to happen. The economy is starting to slow, earnings are starting to get lower. So if the Fed cuts, they're seeing something that's scaring them. So I don't want that to happen. I We've done just great over the last 18 months with with what we would call high rates these days. So I don't think the small cap reversal needs lower rates to continue. The great thing about it is these stocks are still cheap, even though they've, you know, jumped. And so the comparison between the large and the small right now is actually still pretty attractive.

So is it more just a valuation call I guess, or is there a catalyst that's going to really, I guess, kind of put this next leg higher there within that trade?

Yeah. So you got to put your head around this weird statistic that the small caps are small. So, you know, you take 2% off of Nvidia and it can really affect the small cap market if the assets move. The other way around, it doesn't really affect it. But the small cap is a lot of people jamming through a really small door. So this could have a lot of legs and I don't think it's too late to to initiate positions if you haven't already.

Is the Russell still undervalued or?

Yes. No, I really do think it is. And again, it's value is a relative thing in this world. So would you rather own a Russell that's trading at two standard deviations below where it normally trades versus large cap, or would you rather put more money into large caps that are really aberrently overvalued compared to the rest of the market right now?

Well, is tech at a top then in your view?

Well, look, there's terrific cash flow at places like Nvidia, Microsoft, Amazon. I'm not saying this is not the internet bubble, but the difference between the way they perform and what other cash flow company, uh, cash flow producing companies have performed is really disparate. That's what I'm saying is they've been rewarded too much. These guys have been rewarded too little for producing the same amount of cash.

So those that are looking to get in on small caps, I guess, how would you advise them to gain exposure to that? Where more specifically are you seeing that opportunity within the group?

Well, you know, there's a number of mutual funds that focus on small cap. Small cap is hard because it's relatively illiquid. Uh, they're not covered as much. So I would do that, or I would do some ETFs that cover the Russell 2000 index, which, again, has just been a stellar performer for July.