SCN Market Watch – August 21, 2025

Large-Caps Steady, Tech Pullback Deepens, Small-Caps Lag

North American markets opened Thursday with a cautious tone as investors digested mixed economic data and corporate earnings while awaiting guidance from the Federal Reserve at this week’s Jackson Hole symposium. Futures for the Dow, S&P 500, and Nasdaq each slipped around 0.4%, reflecting investor unease after a surprise jump in jobless claims.

Large-Cap Watch: Walmart Miss Jolts Retail Sector

Large-cap names remained under the microscope after Walmart reported weaker-than-expected profits despite exceeding revenue forecasts. Shares of the retail giant fell between 2–3% in early trading. While Walmart raised its full-year outlook, the profit miss underscores the pressure consumer-facing companies face amid shifting spending patterns.

For investors, this reinforces the importance of selective positioning in the retail space—balancing revenue growth against margin pressures.

Tech Stocks Retreat as AI Sentiment Cools

Technology shares continued to retreat, with the Nasdaq down 2.4%, as enthusiasm around artificial intelligence cooled. Names such as Nvidia, AMD, and Palantir led the declines, sparking broader concern about stretched valuations in high-multiple growth stocks.

Investors should watch closely whether this pullback signals a longer-term rotation into more defensive sectors like utilities and staples—or if it’s a healthy reset in tech’s extended rally.

Small-Cap Update: Russell 2000 Under Pressure

The Russell 2000 Index, the key benchmark for U.S. small-cap equities, fell about 0.3% to 2,269.35, extending its modest year-to-date gain to 1.8%. Canadian small-caps also traded mixed, with the S&P/TSX SmallCap Index showing muted activity compared to mid- and large-cap peers.

Despite the weakness, analysts see upside potential in select small-cap names. With interest rate cuts on the horizon, many small-caps—currently trading at roughly a 30% discount to large-cap valuations—could benefit from easing financial conditions. Companies flagged for potential outperformance include Evercore, AAON, Yeti, and Advance Auto Parts, each positioned to benefit from sector-specific catalysts and a more favorable credit environment.

SCN Takeaway for Retail Investors

Large-Caps: Walmart’s results remind investors to focus on profitability, not just topline growth.

Tech Sector: Volatility in AI stocks signals caution—defensive rotation may provide stability.

Small-Caps: Short-term softness, but long-term opportunity if rate cuts materialize; value relative to large-caps is compelling.

SCN Bottom Line:
Markets remain in a holding pattern ahead of Powell’s Jackson Hole remarks. For retail investors, this is a moment to balance portfolios across market caps—leveraging the stability of large-caps, the growth potential of small-caps, and a cautious stance in tech until clarity emerges.

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