Small Cap Revival?

07/10/25 Prospero.ai Investing (236th) Edition (Midweek)

Are Small Caps Quietly Setting Up for a Run?

After months of underperformance, the Russell 2000 has finally shown some life — gaining nearly 5% over the past month and clawing its way back into positive territory for the year. But here’s the catch: it’s happening just as tariff pressures are ramping up again.

Trump’s latest round of planned tariffs, set to hit Brazil, the EU, and others by August 1, could mark a major shift in how investors view domestic versus global exposure. And that’s where small caps might start to shine. With their homegrown focus and less international revenue exposure, they could become a haven if global trade tensions flare again.

We’re watching closely. If this momentum continues, we’ll be looking for ways to tilt more toward small and mid-cap names — especially those tied to U.S. infrastructure, manufacturing, or reshoring themes.

A WORD FROM OUR CEO

We’re maintaining a balanced approach, and so far, the week is unfolding much like the last, our paper trading portfolio is currently beating the S&P 500 by 68% annualized, with a win rate of 60% against SPY benchmarks.

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Small Cap Revival?