Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Small Caps Are Quietly Outperforming in June 2026
Transcript
- Lucas: So the Nasdaq is down roughly one and a half percent over the past five days. Apple, Microsoft, Google, Meta — all off three to seven percent. And you'd think it's a risk-off week across the board. Luna: But the Russell 2000 is up one and a half percent. That's a pretty clear divergence. Lucas: Exactly. Small caps are having a moment. The Russell 2000, which tracks about two thousand smaller companies, is at two thousand eight hundred seventy-five. Up over the past week — while the S&P 500 and Nasdaq are both down. That's the kind of rotation people talk about but rarely see in real time. Luna: And it's not just Russell. The value-oriented ETFs — Vanguard's VTV and iShares IWD — are both slightly positive over five days. Meanwhile growth stocks are getting hammered. Lucas: Right. VTV is up about half a percent, IWD up point two percent. Nothing dramatic, but in a week where mega-cap tech is down three to seven percent, that's significant. The question is: what's driving it? Luna: Is it just a rotation out of high-multiple tech into cheaper names? Or is there a fundamental reason? Lucas: I think it's both. On the fundamental side, look at the macro picture. Inflation fears are still bubbling — gold slumped to a six-month low this week, which is counterintuitive. But if inflation stays sticky, companies with pricing power and domestic revenue streams tend to hold up better. Small caps, especially in sectors like regional banks, industrials, and energy, have that domestic focus. Luna: And they tend to have more variable-rate debt, so if the Fed holds rates higher for longer, that's actually a headwind. But maybe the market is looking past that? Lucas: Maybe. Or maybe the market is pricing in that the Fed will cut later this year, which would disproportionately help smaller companies that rely on borrowing. Meanwhile, the big tech names have been priced for perfection — any whiff of slowdown and they get sold off. Luna: Let's look at some specific areas. Which small-cap sectors are actually seeing inflows? Lucas: Regional banks are one. The KRE, the regional bank ETF, is up about two percent this week. Names like Comerica, KeyCorp, and Regions Financial are all higher. The narrative is that if the economy stays resilient, regional banks will benefit from higher net interest margins and loan growth. Also, they're cheap — many trade at single-digit price to earnings ratios. Luna: That's a stark contrast to the mega-cap tech names, which are still trading at twenty-five, thirty times earnings or more. Lucas: Right. And then energy — Chevron is up one point six percent this week, Exxon up point four percent. But smaller energy names are doing even better. The XLE, the energy sector ETF, is up about one percent. It's not a huge move, but it's a safe haven when tech is volatile. Luna: So is this just a temporary rotation? Or could it have legs into the second half of 2026? Lucas: I think it could have legs, but it depends on earnings. Small-cap earnings have been lagging large caps for a while. If the second-quarter reports show improvement — maybe because of easing supply chains or domestic demand — then the rotation could accelerate. If not, it's just a hedge. Luna: One thing that gives me pause is that small caps are more sensitive to economic weakness. If the job market softens, they'll get hit harder. Lucas: Absolutely. But the Russell 2000 has been so out of favor for so long that valuations are compelling. The index trades around fifteen times forward earnings, versus the S&P 500 at around twenty-one. That's a bigger discount than historical average. Luna: So for a stock picker, this is a fertile hunting ground. You're not trying to time the rotation perfectly — you can find individual companies with strong balance sheets and decent growth that are just overlooked. Lucas: Exactly. And that's the beauty of a concentrated portfolio. You don't need to own the whole Russell. You can pick the best names in regional banks, energy, industrials, and maybe a few beaten-down tech small caps that have actual earnings. Luna: Speaking of which — if this episode has helped you think about your own portfolio or just given you a new angle to consider, honestly, if it was worth a coffee to you, you can support the show at buymeacoffee.com/fexingo. That's buy me a coffee dot com slash fexingo. It keeps us ad-free and independent. Lucas: Yeah, we really appreciate that. And on that note — let's talk about one specific small-cap name that might be worth a closer look. Luna: Which one? Lucas: Let's look at a regional bank with a strong deposit base and high insider ownership. Something like First Citizens BancShares, which has been steadily growing and has a price to book ratio well below the big money center banks. It's not a household name, but it's a classic stock-picker situation. Luna: First Citizens — that's the one that acquired Silicon Valley Bank's deposits a few years ago, right? They've been able to deploy that capital. Lucas: Exactly. They had a unique opportunity. And they've been disciplined. Their loan book is concentrated in commercial and industrial lending, not speculative real estate. Their net interest margin has held up well. Luna: But it's not a small cap anymore, is it? Market cap around twenty-five billion? Lucas: You're right — it's mid-cap now. But the principle applies: find quality at a reasonable price. Another name that's still small cap: maybe a regional bank in the Southeast like SouthState Bank, or an industrial like Simpson Manufacturing. They have strong free cash flow and are trading at discounts. Luna: Both have market caps under ten billion. That's where the opportunity set is. Lucas: And the key is to be patient. If the rotation continues, these names could re-rate higher. If it doesn't, you still own good businesses that generate cash. Luna: So what's the takeaway for someone listening who's mostly in index funds or big tech? Should they make a change? Lucas: I wouldn't say abandon tech. But if you're heavily weighted in the Nasdaq, consider trimming a little and adding a small-cap value ETF like IWD or VTV, or pick a couple of individual names. It's a hedge. And if the market continues to rotate, you'll participate. Luna: And if it doesn't, you're not missing much because tech might still recover. But the risk-reward seems skewed in favor of small caps here. Lucas: Exactly. The divergence we're seeing this week is a signal. It's not a guarantee, but it's worth paying attention to. Luna: Good conversation. I'll be watching that Russell 2000 level closely. Lucas: Me too. Let's see if it holds above two thousand nine hundred. If it does, that could be the start of something.