Cycle Trading

Stocks confirmed a new daily cycle low yesterday. But already, in just the first few days of this young daily cycle, we’re seeing early signs of leadership rotation—and that could have important implications not just for the daily cycle, but potentially for a developing intermediate cycle as well.

Two of the early leaders are Homebuilders (XHB) and Small Caps (IWM). Both groups are beginning to show relative strength versus the S&P 500—an early tell that capital may be rotating into areas positioned to benefit from the macro backdrop heading into December.

One major catalyst driving this rotation is the growing expectation of a Federal Reserve rate cut next month.

👉 The CME FedWatch Tool now shows an 82.7% probability of a December rate cut.

Lower rates tend to create powerful tailwinds for both sectors:

Homebuilders (XHB)

Rate cuts typically push mortgage rates lower, improving affordability and stimulating demand for new homes—directly supporting the homebuilding industry.

Small Caps (IWM)

Small caps tend to rely more on floating-rate debt. That makes them vulnerable during rate hikes, but when rates fall, their borrowing costs ease quickly—boosting margins, cash flow, and growth capacity. Historically, small caps often outperform early in new easing cycles.

The fact that these rate-sensitive sectors are showing strength at the very start of a new daily cycle may be an early hint of something larger. This type of behavior often appears ahead of a new intermediate cycle.

If this leadership persists, it could mark the beginning of a broader trend shift—one that investors will want to monitor closely as we move through November and into December.