The long-awaited rebound in US small cap stocks has finally been triggered.$iShares Russell 2000 ETF (IWM.US)$There was a record-breaking trading of call options, with a number of 1.35 million contracts, according to the Trade Alert data. The daily turnover increased significantly during the past 10 days. These call options will benefit from the strength and rise of the underlying.

As of the close on July 23, the small-cap sector-focused CNI Mid-Small Cap.Index rose by more than 10% in the past 10 trading days.$Russell 2000 Index (.RUT.US)$The head of small-cap stocks from Jennison Associates pointed out that the rise in interest rates was a major hurdle for the small-cap market. However, the decline in interest rates is expected to ease this pressure, which is a potential bullish factor for small businesses that have been struggling due to rising borrowing costs.

The market intelligence director from CBOE Global Markets also stated that the demand for call options for small-cap stocks and related ETFs has increased sharply recently. These call options are trading at a premium over put options, indicating the market's positive attitude towards small-cap stocks. Meanwhile, there have been some fluctuations in the technology and growth sectors, which seem to confirm a widespread speculation that funds may flow into small-cap stocks as the technology sector, which had the most impressive performance this year, pulls back.

The Nasdaq 100 Index, which has a high proportion of technology stocks, has fallen by a cumulative 3.42% in the past 10 trading days affected by the expectation of interest rate cuts and the trading sentiment of Trump policies.$Russell 2000 Index (.RUT.US)$Market participants analyzed that the funds that have been hiding in technology stocks are actually safe-haven funds. The most popular strategy in the US stock market in the first half of this year was to invest in large companies, such as those in the technology sector, when inflation exceeded expectations, and tend to sell small-cap stocks. This is because the fundamentals of technology giants are AI-driven and have a low correlation with inflation and the economy, and they have ample cash flows. However, once inflation slows down, the market funds begin to shift towards interest rate trading, selling technology stocks, and buying small-cap stocks. Moreover, this person further analyzed that technology stocks are likely to be unable to outperform small-cap stocks and biotechnology in a certain period of time as these sectors are sensitive to interest rates.

Yesterday, both of the two major technology giants released financial reports that were below market expectations, causing both stocks to fall before the market opened. This situation is highly likely to become a catalyst for the downward pressure on the Nasdaq 100 Index today, leading funds to flow from technology stocks to small-cap stocks.

Specifically,$NASDAQ 100 Index (.NDX.US)$Moreover, one of the most optimistic market analysts on Wall Street, the co-founder and research director of FundStrat Global Advisors, steadfastly predicted that the E-mini Russell 2000 Index would soar by 50% this year. The logic behind their optimistic prediction includes the expected interest rate cuts, the significant undervaluation advantages of the E-mini Russell 2000 Index's constituents compared to those of the Nasdaq 100 Index, and the massive watch-and-see funds in the current currency market. All of these provide strong support for further upward trends in small-cap stocks market.

Currently, the US stock market's layout for small-cap ETFs is very hot. Looking at the past 10 trading days' gains and losses, small-cap ETFs have outperformed large-cap ETFs.$NVIDIA (NVDA.US)$How to join this small-cap rally?

The funds that have been hiding in technology stocks are actually safe-haven funds. The most popular strategy in the US stock market in the first half of this year was to invest in large companies, such as those in the technology sector, when inflation exceeded expectations, and tend to sell small-cap stocks. This is because the fundamentals of technology giants are AI-driven and have a low correlation with inflation and the economy, and they have ample cash flows. However, once inflation slows down, the market funds begin to shift towards interest rate trading, selling technology stocks, and buying small-cap stocks. Moreover, this person further analyzed that technology stocks are likely to be unable to outperform small-cap stocks and biotechnology in a certain period of time as these sectors are sensitive to interest rates.$NASDAQ 100 Index (.NDX.US)$Large companies like AI-driven technology giants may be unable to outperform small-cap stocks and biotechnology in a certain period of time as these smaller companies are likely to benefit from interest rate cuts.

And yesterday,$Alphabet-A (GOOGL.US)$And.$Tesla (TSLA.US)$This situation is highly likely to become a catalyst for the downward pressure on the Nasdaq 100 Index today, leading funds to flow from technology stocks to small-cap stocks.

FundStrat Global Advisors' co-founder and research director, who is one of the most optimistic market analysts on Wall Street, steadfastly predicted that the E-mini Russell 2000 Index would soar by 50% this year.

Based on the logic that the expected interest rate cut and the large undervaluation advantage of Russell 2000 constituent stocks compared with the NASDAQ 100 constituent stocks, as well as the current huge watch-and-see funds in the money market, all of which provide powerful support for the further upward movement of the small-cap stock market. $S&P 500 Index (.SPX.US)$The significant undervaluation advantages of the E-mini Russell 2000 Index's constituents compared to those of the Nasdaq 100 Index, and the massive watch-and-see funds in the current currency market, all provide strong support for further upward trends in small-cap stocks.

Currently, the US stock market's layout for small-cap ETFs is very hot.

Currently, the layout of small-cap stock ETFs in the US stock market is very hot. Looking at the changes in the past 10 trading days,$Direxion Daily Small Cap Bull 3X ETF (TNA.US)$The highest increase was 33%; followed by , which rose more than 20%; while the Russell 2000 Growth Stock Index ETF-iShares (IWO.US) and rose 10.54% and 8.77%, respectively.$Proshares Trust Pshs Ultruss2000 (UWM.US)$, increased by more than 20%; while$iShares Russell 2000 ETF (IWM.US)$And.$iShares Russell 2000 Growth ETF (IWO.US)$rose 10.54% and 8.77%, respectively.

It is worth noting that small caps have a higher volatility and lower weighting in the technology industry. Investors need to pay special attention to investment risks.

There are plenty of index ETFs available for investors to choose from in the U.S. stock market. Mooers can click on the following link to see more details:Market > ETF > US stock market > Index ETFClick here to view.

Editor/ping