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There's less than two weeks left in 2025, but for small-caps, the new year is already here. Morningstar made light of the outperformance in small-caps, which historically manifests itself in an early year rally known as the “January Effect.
Traders worried about large-cap stocks hitting peak valuations may want to step into the midcap arena. Long- and short-term traders can also take advantage of future upside if the market environment shifts in favor of these companies.
Much credit goes to large-caps for pulling the broad market out of April's sell-off abyss. But traders looking for other plays this summer may want to consider downsizing with small- and midcap plays.
The Direxion Daily Mid Cap Bull 3X Shares ETF seeks to deliver 300% (3x) the return of the S&P MidCap 400 index. The S&P MidCap 400 index has a circa 65% allocation to cyclical sectors, most notably Industrials, a key benefit amid expectations for 2.7% US GDP growth by the IMF. The S&P MidCap 400 trades at a trailing earnings yield of almost 5% and does not suffer from an elevated concentration in just a few names.
With large-caps getting most of 2024's attention, traders may be overlooking one area that could offer opportunities. In the Fed's rate-cutting cycle, traders may also want to pay attention to midcaps.
Navigating capital markets requires intangible tools like intuition, mental acuity, and even a bit of luck. Then comes the tangible tools to maximize profit, like leveraged ETFs, which can help traders in a variety of ways.
In the past three months, large-caps have been ahead. The Direxion Daily S&P 500 Bull 3X Shares ETF (SPXL) pulled past the Direxion Daily Mid Cap Bull 3X Shares (MIDU) and the Direxion Daily Small Cap Bull 3X Shares (TNA).
When it comes to small-cap investing, it can be difficult to hit a home run. However, mid-cap exposure can make for hittable plays, giving investors an opportunity to get exposure to companies that may have a higher chance of breaking through the large-cap ceiling.