Small-Caps Stir as Wall Street Eyes a Rotation

Undervalued Sectors Could Lead Q3 Rally

Published: July 16, 2025 | SmallCap Network

After months of mega-cap domination and AI-fueled exuberance, a quiet shift is taking shape across the broader markets—and small caps may finally be ready to take the lead.

With inflation moderating, interest rate cuts back on the table, and capital rebalancing already in motion, Wall Street is starting to rotate. And for seasoned investors, all signs point toward a renewed focus on undervalued sectors that could power a breakout Q3 rally.

The Great Rotation: What’s Happening

The S&P 500 and Nasdaq have hit record highs on the backs of the “Magnificent 7,” but under the surface, small-cap value stocks are beginning to show signs of life. Investors are increasingly looking for:

• Lower valuations

• Greater growth potential

• Asymmetric risk-reward setups

This environment tends to favor small-cap equities, especially those in sectors long ignored by Wall Street—such as resources, industrials, and emerging tech.

Sector Spotlight: What’s Moving

1. Uranium & Critical Minerals
   A global energy transition is underway, and demand for clean nuclear energy is spiking. Uranium juniors are waking up, with several microcaps seeing double-digit volume increases this week.

2. Healthcare & Medtech
   Under-the-radar biotech and medtech stocks with real pipelines (or recent turnarounds) are drawing retail and institutional eyes again—particularly those under $1.

3. Blockchain Infrastructure
   With renewed clarity on U.S. regulation, some crypto-adjacent plays are regaining steam, especially those building behind-the-scenes technology.

4. AI’s Second Wave
   While NVIDIA and the top players steal headlines, AI enablers—companies providing hardware, cooling tech, and data routing—are quietly building momentum.

The Case for Small Caps

Why now? Here’s what makes Q3 a critical inflection point:

• Valuation Spread: The gap between small- and large-cap valuations is near historic highs.

• Macro Setup: With inflation cooling, the Fed is expected to pause or cut—a huge tailwind for rate-sensitive small caps.

• Volume Surge: Many small-cap names are beginning to trade on higher-than-average volume—a signal that smart money is entering early.

SCN’s Take

We believe the most interesting plays going into late July and August won’t be found in the headlines—they’ll be found in the underfollowed, underloved corners of the market. With strong storytelling, breakout technicals, and strategic coverage, these companies can rapidly gain traction in a momentum-driven environment.

This is the time to prepare, not chase.

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