Tech-Driven Gains Propel the Market

The S&P 500 rose approximately 0.2%, and the Nasdaq Composite ticked up 0.1%, buoyed by strong rallies in big-tech names like Alphabet (Google), Apple, and Tesla. Alphabet soared 9.1% to a record high after sidestepping harsh antitrust penalties, while Apple surged 3.8% after surpassing a critical technical buy point following a favorable ruling. Tesla also contributed, advancing 1.4%, although broader market support for its gains remained tentative as discussions around its robotaxi and Optimus ventures dominated investor focus.
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Dow Jones Industrial Average faltered slightly, sinking by about 29 points—a reflection of mixed earnings and cautious positioning among industrial and financial names.
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Treasury Yields eased modestly, with the 10-year falling to approximately 4.19%, reflecting investor hopes of a Fed rate cut amid signs of a slowing labor market.
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Labor Market Signals & Rate Cut Expectations

Soft Employment Data Fuels Speculation

The labor front added to the cautious tone: the ADP report revealed private payroll growth of just 54,000 in August—far below expectations of 68,000 and sharply down from July’s 104,000. Simultaneously, initial jobless claims rose to 237,000, exceeding forecasts. These indicators point to a cooling labor market and have heightened speculation that the Federal Reserve might cut interest rates later this year.
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Canada Watches Closely

North of the border, TSX futures rose 0.4% in anticipation of Canadian and U.S. employment data. With Canada’s unemployment rate expected to tick up to 7% and an already reported Q2 GDP contraction, the Bank of Canada (BoC)is facing growing pressure to cut its 2.75% benchmark rate. Money markets place the odds of a 25‑basis-point cut at approximately 68.5%.
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Small-Cap Momentum: A Renewed Push

August Rally Narrowing Historical Gaps

Throughout August, small-cap stocks staged a meaningful comeback. The Russell 2000 Index surged 7%, significantly outperforming the broader S&P 500, which gained nearly 2%. As of early September, the Russell stood within about 4%of its November 2021 closing high, signaling a potential breakout.
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ETF Performance Highlights

The iShares Russell 2000 ETF (IWM) appreciated 6.3% over the past month (as of September 3), far exceeding SPY’s ~2% gain. Yet, on a year-to-date basis, IWM remains behind: SPY up about 10% vs. IWM’s 5.7%.
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Fundamentals Offer a Mixed Picture

Small-cap firms tend to be more sensitive to borrowing costs—an issue given the 10-year Treasury yield hovering near 4.22%. In this environment, profitable small-caps with strong cash flow have recently outperformed their unprofitable peers. For example, value-oriented strategies focusing on cash-flow generative firms limited losses compared to broader small-cap indices. At the same time, small-cap value ETFs have outpaced growth counterparts:

RZV (Pure Value ETF): +11.0% over the past month

XSVM (Value with Momentum): +9.9%
And others delivering consistent double-digit moves.
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Attractive Valuations

Despite recent gains, small-cap stocks remain relatively—and historically—cheap. Small-cap value stocks are trading at more than a 30% discount to large-caps, offering an appealing risk-reward profile amid economic uncertainty.
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Earnings Growth Catching Up

Analysts anticipate small-cap earnings growth to begin surpassing that of their large-cap peers, following years of lagging behind. Rising growth expectations and relatively low valuations offer a compelling case for renewed interest in small-cap exposure.
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Broader Market Sentiment

Investors are beginning to view small-cap equities as poised for a breakout, particularly because valuations now stand at their deepest dislocation from large-caps in over two decades. Market strategists see this as a potential inflection point.
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Key Market Movers & Earnings Spotlight

American Eagle Outfitters (AEO) soared nearly 26%. The retail stock exceeded Q2 profit expectations, buoyed by a viral advertising campaign featuring Sydney Sweeney and Travis Kelce.
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Salesforce (CRM) declined over 7% in premarket trading after delivering strong Q2 results but issuing a weak Q3 revenue outlook.
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Figma, a recent IPO, fell sharply despite beating estimates in its debut earnings report.
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Other notable movers included Credo Technology, Ciena, and HP Enterprise, which saw solid gains post-earnings.
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Market Outlook: What Comes Next

Central Banks Under the Microscope

With cooling job data in hand, focus now shifts squarely to Friday’s monthly jobs report. Market watchers will gauge the likelihood of rate cuts by both the Fed and BoC heading into year-end.
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Small-Cap Watchlists on the Rise

Given valuation potential and improving macro dynamics, many investors are refreshing their small-cap watchlists, particularly in quality-focused value segments. Themes like cash-flow stability and active value management are gaining traction.
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Choppy but Opportunity-Rich Environment

While headline indices appear healthy, the broader tone remains mixed: powerful showings by a handful of tech giants contrast with softness elsewhere. Range-bound action may continue, heightening the need for diligent stock selection.
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Conclusion

Today’s market paints a tale of contrasts:

Strength driven by tech behemoths like Alphabet, Apple, and Tesla.

Softness emerging in labor data, hinting at weaker economic momentum and fueling central bank easing expectations.

Small-caps rallying with renewed vigor, led by value and profitability—narrowing the long-standing gap with large-cap performance.

For investors, the path ahead requires a balanced approach: weigh defensive small-cap value plays with broader equity exposure, and stay alert for signals from both economic data and earnings to guide positioning over the coming weeks.