SmallCap Network – October 27, 2025
By the SCN Editorial Desk

A broad rally takes hold across North American markets

North American equity markets opened this week on a buoyant note, as optimism swept through investor sentiment ahead of several key catalysts—from geopolitics to central-bank policy. In the U.S., the S&P 500 rose around 0.8%, the Nasdaq Composite advanced about 1.3%, and the Dow Jones Industrial Average added roughly 200–300 points in early trading. The Wall Street Journal+5Investors+5AP News+5
Canadian and broader North American markets followed the lead, with investors feeling encouraged by the combination of trade-talk progress, the prospect of lower interest rates, and a relatively stable global backdrop.

Key drivers this morning:

Signs of easing tension in the U.S.–China trade relationship, with reports that top officials have outlined a framework agreement ahead of a meeting between Donald Trump and Xi Jinping later this week. Reuters+2Investors+2

Elevated hopes that the Federal Reserve will cut interest rates at its upcoming meeting—a 25 basis-point reduction is widely anticipated. MarketWatch+2Bloomberg+2

Markets rotating away from traditional safe-haven assets: gold and long-dated Treasuries pulled back as risk appetite increased. Reuters+1

Technology and high-beta names led the advance, supported by earnings expectations and macro tailwinds. Seeking Alpha+2Investors+2

The rally reflects a classic “risk-on” session, where investors are progressively discounting downside scenarios and leaning into growth and cyclicality. That said, this optimism is tempered by the upcoming heavy calendar: major tech earnings, the Fed meeting, and additional global trade developments all sit ahead.

Canada and the broader North American context

While most of the headlines focus on the U.S., the Canadian market and other regional players are not far behind in capturing upside potential. Canadian equities have benefited from the tailwinds of improved trade prospects, and commodity-linked sectors remain a focal point given the possible easing of rare-earth and mineral export constraints from China. The broader North American market is also being shaped by cross-border implications of policy and trade—so Canada’s resource and finance sectors are gaining interest.

Although Canada’s indices are not always front-page in global headlines, the dynamics are clear: global trade optimism and domestic monetary policy expectations are providing favourable backdrop. The linkage between U.S. policy (rates, trade) and Canadian markets remains strong, so any headline from Washington is likely to reverberate north of the border.

Small-caps: re-entering the spotlight

Within this broader market backdrop, smaller companies are receiving more attention—both as beneficiaries of stronger growth prospects and as higher-beta playbooks in a favourable policy regime. The benchmark for U.S. small-cap stocks, the Russell 2000 (which tracks the ~2,000 smallest U.S. stocks of the Russell 3000) continues to serve as a useful barometer of smaller-company sentiment. Wikipedia+2MarketWatch+2

Recent commentary suggests the following:

Small-cap stocks have shown meaningful gains in the quarter, with one report noting an ~11% rise in Q3, which outpaced many large-cap benchmarks. Investors

Yet, despite the bounce, they still lag year-to-date performance of larger stocks; for example, the S&P 500 is up more than small caps so far this year. MarketWatch+1

Optimism is particularly elevated because reduced interest-rate burdens benefit smaller companies (which often carry more floating-rate debt) and because a trade-friendly environment helps domestically-oriented firms rather than global heavyweights. Investors+1

For investors focused on small-cap exposure, the current setup offers both opportunity and caution. On the opportunity side: favourable macro conditions, rotation away from ultra-large caps, and undervaluation in some segments. On the caution side: valuations in small-caps have risen (some argue they now rival large-caps), meaning the margin for error is thinner. MarketWatch

In short: small-caps are moving from the sidelines to the spotlight, but care must be taken to differentiate between solid fundamentals and speculative momentum.

Sector and style themes to watch

Growth vs Value
Growth stocks remain in demand—especially within tech and AI-related themes—consistent with the strong performance of the Nasdaq and the tech-led rally. One note: while growth leads, several value and cyclically-oriented sectors are waking up thanks to trade and rate optimism. That said, the advance is not yet broad-based.

Technology & AI
As expected, the tech sector is receiving outsized attention. Stocks such as Nvidia Corporation (NVDA), Advanced Micro Devices (AMD), Microsoft Corporation (MSFT) and others are guiding the market’s tailwinds. In fact, specific small-cap/tech-adjacent firms are catching momentum too. Barron’s

Commodities & resources
Another interesting angle: commodity and resource-related stocks—especially rare-earths and miners—with the potential China deal likely to ease export restrictions, are under the spotlight. That said, some miners moved lower on expectations of increased Chinese supply. New York Post+1

Interest rates & duration risk
From the fixed-income side, investors are trimming long-duration Treasury positions ahead of the Fed meeting. The move signals growing confidence in a stable policy shift or eventual rate cuts. Reuters For equities, lower future discount-rates generally enhance valuations for growth and smaller companies—but also expose them to policy risk if hawkish surprises arrive.

Trade policy and geopolitics
Markets are clearly reacting to the prospect of a trade rapprochement between the U.S. and China. The expectation of a deal ameliorates a major overhang on global growth and corporate earnings. That said, the Canada–U.S. relationship has its own tensions and could act as a pocket of risk for Canadian-linked stocks.

What’s next: Key risk and event calendar

This week marks a key junction for North American markets. Among the items to watch:

The Federal Reserve’s two-day meeting (starting Tuesday), where a 25 bp cut is widely expected—but language and projections will matter more than the headline move. MarketWatch+1

Marked earnings reports from mega-cap tech companies: Apple Inc. (AAPL), Google’s parent Alphabet Inc. (GOOGL), Amazon.com Inc. (AMZN), Microsoft among them. Their results could steer broader sentiment. Investopedia+1

The upcoming summit with Trump and Xi, where announcements about trade, rare-earths, soybeans and technology access may be unveiled. Investors

Continued monitoring of the U.S. government shutdown and its indirect effects on data flows, fiscal policy and investor confidence. The delay in key economic releases is an under-the-radar risk. Wikipedia

On the risk side:

If the Fed signals a more cautious or hawkish stance, that could unsettle both large and small-cap markets.

Earnings misses in even a few major tech names could trigger broader rotation away from growth (and small-cap/tech-adjacent) stocks.

Trade policy surprises (whether positive or negative) can move resource, manufacturing and export-oriented stocks meaningfully.

Valuation risk: small-caps, especially those with elevated valuations or weak fundamentals, may suffer disproportionately if growth falters.

Implications for investors and portfolio strategy

Given the current backdrop, here are several strategic take-aways:

Diversification matters: With large caps, small caps and international exposures all behaving differently, maintaining balanced exposure remains important.

Small-cap selective play: For investors with higher risk tolerance and longer horizons, selective small-cap exposure makes sense—especially in high-quality growth companies or those exposed to domestic growth engines rather than vulnerable global supply chains.

Monitor valuation and fundamentals: Especially in small-caps, where volatility is higher and earnings can be less predictable, focus on firms with clean balance sheets, rising earnings momentum, and management execution.

Be event-aware: Make sure portfolios are positioned ahead of the Fed meeting and major earnings. For example, small-caps may benefit from confirmation of easing policy, but could suffer if guidance disappoints.

Regional/country nuances: In Canada and across North America, keep an eye on resource exposure (given trade links with China), and domestic‐oriented firms may outperform global exporters in the short term.

Bottom line

As of October 27, 2025, North American equity markets are riding a wave of optimism—fueled by trade-deal hopes, anticipated interest-rate relief, and strong corporate earnings prospects. While large-cap growth is driving much of the move, small‐cap stocks are increasingly catching attention, underlying a potential shift in market leadership.

That said, the optimism comes with caveats. With the Fed decision, mega-cap earnings and geopolitical developments all imminent, markets may be vulnerable to a “sell the news” reaction if expectations are not met. For small‐cap stocks in particular, the reward is higher—but so is the risk. For investors in pursuit of generational wealth (as many SCN readers are), this is a moment to lean in selectively—but also to remain disciplined about valuation, quality and diversification.

As we proceed through the week, it will be key to observe whether this up-move broadens beyond the largest names into a fuller market advance—and whether smaller companies can deliver on fundamentals rather than simply riding macro waves. The next few days may set the tone for the final quarter of 2025 across North American equities.

Editorial note: The information presented here is for informational purposes only and should not be construed as investment advice. Investors should conduct their own due diligence or consult financial professionals.