Small caps outperform following short squeeze.
A significant shift in market sentiment occurred on Thursday, as investors moved away from large-cap tech stocks and into other sectors. This change was triggered by a lower-than-expected inflation reading, which sparked a rally in small-cap stocks and a decline in tech shares. The Russell 2000 index saw a notable 3.6% increase, while the Nasdaq Composite fell 2%. Investors are now wondering if this shift marks a temporary correction or a broader change in market direction. Shorts were squeezed as heavily shorted stocks surged, with some investors predicting further gains. Despite a record high earlier in the session, the S&P 500 pulled back 0.9%, while the Dow Jones Industrial Average remained steady. The inflation slowdown has increased expectations of a rate cut by the Federal Reserve in September. The tech-heavy "Magnificent Seven" stocks, which have driven the market rally since October 2022, fell sharply, losing over $500 billion in market capitalization. However, the majority of S&P 500 stocks rose, with the equal-weighted index outperforming the market-cap-weighted version.
Russell Shor
Senior Market Strategist
Russell Shor is a Senior Market Strategist at FXCM, having been promoted to the role in 2025 in recognition of his depth of insight and consistent delivery of high-impact market analysis. He originally joined FXCM in October 2017 as a Senior Market Specialist.
Russell holds an Honours Degree in Economics from the University of South Africa, is a certified FMVA®, and a full member of the Society of Technical Analysts (UK). With over 20 years of experience in financial markets, his work is renowned for its clarity, precision, and strategic value across asset classes.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.