Back up the truck to where the ball is going before the party starts.
Wait. What?
Today was a microcosm of what the near future holds.
Small and Mid-cap stocks ripped today while large caps sank.
Why?
Because we got a weak inflation read. It was the first negative inflation read we’ve gotten since May of 2020.
So why do small and mid-caps “care”?
Because the weaker inflation is, the more likely the Fed is to start cutting rates.
Small and mid-size companies borrow money to operate.
If rates are high, it’s more expensive to borrow, so they borrow less.
If they borrow less, they don’t have the capital to grow.
But once rates start dropping, they can start borrowing more, which leads to growth.
So small and mid-cap stocks usually do well coming out of a high-rate environment.
Meanwhile, large caps were pulled down today almost EXCLUSIVELY today from the big tech firms that have led the market for the last 3 years.
And that, my friends, is why you don’t chase gains.
By the time you back up the truck on what’s done best recently, the party is almost over.
You want to run where the ball is going, not where it is.
Putting it all together, back up the truck to where the ball is going before the party starts.
