US Microcap stocks lead the way in 2025

The markets bounced strongly on Friday following a weak start to 2025. Microcap and Mag7 (Tesla really) led the way. This Friday we have the December nonfarm payroll figures, expectations appear to be c175k. This could be a big market mover depending on the outcome, the other dark cloud in the sky is the 10 yr bond yield and the fact that so much US debt is being refinanced this year (US$9 trillion), higher financing costs is likely to impact equities so keep an eye on the 10yr yield.

The US market has started 2025 with microcap and risk stocks in particular strongly outperforming the market, how long this continues is yet to be seen. Inflation and job data will continue to hang over the Market this year but the implications of the incoming President Trump and his policies will increasingly impact on bond yield and the wider equities markets. We are in a period similar to that seen in the 90s with continued fears of overheating and inflation concerns resulting in market retreats followed by periods of strong market performance. Our market history page shows the volatility by sector during this time. During the period '95 to 2000 a time of remarkable underlying growth the market retreated 8 times for typically 2 or 3 consecutive months. The economic environment today would appear to be far more uncertain in comparison and certainly government debt is completely different.

US Indexes all bounced on Friday following a number of down days. The VIX was flat at 17. The main indexes on Friday were; DJIA +0.80%, S&P 500 +1.26% and Nasdaq +1.77% (Mag7 +2.51%). On an equal weighted basis (our measure) the overall market was +1.8%. Breadth of 71% (daily range since the election is 9% to 71%). Daily volumes of 10b (the range since the election is 8b to 18b). 

Daily returns on an equal weight basis: Market +1.8%, Mag7 +2.51% (TSLA +8.2% NVDA +4.5%, AMZN +1.8%, GOOGL +1.3%, MSFT +1.1%, META +0.9% AAPL -0.2%), large cap +1%, medium cap +1.2%, small cap +1.3% and micro cap +2.4%. 

Weekly returns on an equal weight basis: Market +2.6%, Mag7 -0.78% (NVDA +5.4%, META +0.8%, AMNZ +0.2%, GOOGL -0.5%, MSFT -1.7%, AAPL -4.8%, TSLA -4.9%), large cap +0.25%, medium cap +0.48%, small cap +1.19% and micro cap +4.33%.

Our risk monitor has tipped in favour of the Micro cap stock for the first time in over 12 months.

All Sector and all market cap bands were strongly up on Friday: Healthcare was the best performer +3% (Biotech +3.7%) and surprisingly the sector has actually beaten the market over the last four week albeit it has still underperformed the market by 11.1% over the last year. A major reason for the current outperformance is the flip towards risk and the outperformance of Micro cap stocks. Technology was +2.7%, pushed higher by strength in Blockchain +8.8%, Technology Equipment +2.8% (Integrated Hardware +5.4%, Electronic Equipment & Parts +3.9%, Semiconductors +2.7%), Software was also strong at +2.5%. Industrials, at +2.1%, was the other sector to be a the market (Aerospace +3.7% - next gen aviation and space). Consumer Cyclicals slightly underperformed the market but was still up a healthy 1.74% (auto +6.2% driven by Polestar +88%, but nearly all EV car companies were strong) Basic Materials +1.3% performed well after a weak last four weeks. Energy +1.36% slightly underperformed the market with Fossil Fuels weak relative at +0.78%, Uranium was +0.96% and Renewable Energy & Equipment +5.6% - this sub sector has beaten the market by 28% over the last 2 weeks. Electric Utilities performed strongly +1.7% driven by Nuclear stocks but the other utilities lagged.

A notable number of 52 week highs was seen in the following sectors: Consumer Cyclicals (Hotels and Retailers), Financials, (Banking & Investment), Technology (Software & IT Services, Technology Equipment and Fintech).

High volumes were seen in the following sector: Consumer Cyclicals (across the sector), Financials (across the sector), Healthcare (across the sector), Industrials (across the sector) and Technology saw a very high number (Software & IT Services, Technology Equipment)