The Fed’s first rate cut of the cycle is here — and as John Rowland, CMT, highlighted during last Friday’s Market on Close livestream, that’s usually bullish fuel for small-cap stocks.

The move is already showing up in price action. The Russell 2000 ETF (IWM) notched a fresh high — its first of the year, and the highest close since 2021.

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That’s a three-year breakout.

Not all small-cap ETFs are built the same.

~2,000 companies

Many are unprofitable or low-quality

Momentum is strong, but the “junk” factor is real

~600 companies

Stringent screening for liquidity and profitability

You’re essentially getting the “cream of the crop” from the Russell 2000

While IWM has already broken to new highs, the S&P SmallCap 600 ETF is lagging slightly — but showing the same V-bottom formation that could mean upside is coming.

Momentum setups: V-bottoms in both IWM and VIOO suggest follow-through.

Relative strength: Watch if the S&P 600 starts to catch up — that’s a sign quality is leading.

Macro catalysts: With rate cuts underway, small-caps historically outperform as financial conditions ease.

Pull up IWM Interactive Chart and overlay RSI/MACD for trend confirmation.

Compare the IWM & VIOO small-cap ETFs side-by-side.

Use the ETF Screener to rank small-cap funds by performance, liquidity, and volatility.

Check the Economic Calendar for upcoming Fed and inflation data that could fuel the next leg of the move.

Small caps are finally breaking out — but the way you play them matters. IWM offers broad exposure (along with plenty of weak links), while the S&P 600 focuses on profitability and liquidity.

Watch the clip from Market on Close where John Rowland compares the two small-cap funds:

Stream the full Market on Close episode for more market context on the small-cap rally.

Explore Barchart’s ETF tools to decide which vehicle fits your strategy.

On the date of publication, Barchart Insights did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com