During the Aug. 22 Market on Close livestream, John Rowland noted small-caps breaking out while mega-cap tech is in focus. With the Russell 2000 ETF up 6% on the year, traders should watch for potential sector leadership if tech sees profit-taking, especially as the Fed considers rate cuts.

Breakout levels are crucial, as IWM has cleared the breakout zone and shows momentum building with an ATR of ~4 points. Smaller companies are highly sensitive to borrowing costs, so any Fed rate cuts could benefit small-caps disproportionately.

A breakout in IWM suggests market breadth improvement, potentially shifting leadership from tech. Sectors like industrials, financials, and homebuilders could benefit from lower financing costs and increased demand.

Industrials may see growth in capex and infrastructure, while financials could experience a revival in lending and credit demand. Lower mortgage rates could boost demand for homebuilders.

If the Fed cuts rates, sectors like industrials, financials, homebuilders, and small-caps could see increased attention. Consider adding ETFs like IWM, XLI, XLF, and XHB to track leading stocks and potential beneficiaries.

While markets may be “getting ahead of themselves,” a Fed rate cut could trigger a rotation in leadership. Keep an eye on industrials, financials, homebuilders, and small-caps for potential opportunities in a changing market environment.

Read more at Yahoo Finance: Will Fed Rate Cuts Spark a Small-Cap Stock Rally?