May 30, 2024

It’s been another week of small caps getting pulled around by moves in the 10-year yield, which is largely a function of Fed speaker commentary.

First it was Neel Kashkari (non-voter) sounding off with hawkish comments (yields up, small caps down), though it’s the inverse today after Raphael Bostic (voter) said he still thinks the Fed will be in position to cut rates in Q4.

Next up are NY Fed President John Williams (12:05 ET) while Dallas Fed President Lorie Logan speaks after the close today.

Rather than just show the relationship between small caps and the 10-year yield this week I thought it would be interesting to look at a broader group of indices. The following chart shows the 10-year yield (red, up lately) versus the Nasdaq (QQQ, pink), equal-weight S&P 500 (RSP, green) and S&P 600 (IJR, cyan).

As you can see, all the indices are moving in the same general direction relative to the 10-year yield. And since April the relationship has been negatively correlated. That’s different from how it was for the first three months of the year.

If you’re feeling more annoyed with this relationship (as I am) since April, you have good reason! Maybe we don’t need to hear from Fed officials every other day?

Something else of interest here…

I’ve been talking about how small caps have underperformed large caps. But also, how part of that is due to the huge upward pull of the Magnificent 7, which make up over 30% of the S&P 500. There is no group of stocks that has such a significant influence in the small-cap index.

In the one-year chart below, I compare the S&P 600 Small Cap Index (IJR) to the Equal-Weight S&P 500 Index ETF (RSP), which strips out the overweighting of the Mag-7.

Small caps are not looking so shabby now, are they?

Let’s move on to portfolio updates.

Recent Changes:
None

Updates

Alphatec (ATEC) was sold last week after the stock moved below support near 10.4. No update. SOLD

Docebo (DCBO) is our cloud-based learning management software position. The company gives customers a learning platform where admin teams can centralize a wide variety of learning materials – for both internal (employees) and external (customers, partners, suppliers) workers. Software stocks have been taking a beating lately (look at CRM, WDAY, etc.) and DCBO hasn’t been immune. We’re closely watching the 35.5 level as a break below that likely means we will cut it loose. BUY

Enovix (ENVX) perked up in late April and continues to look better and better. As I stated last week, management’s comments at the JP Morgan Global Technology, Media and Communications conference were well received. I think the commentary around “50% gross margin on larger batteries priced in the $13 - $14 range” and potential to get close to profitability with four lines and over the hump with eight, along with no need for funding soon, was positive for shares. One month left for the team to announce Agility Line production, with higher volume production to start soon after. BUY

EverQuote (EVER) has flattened out over the last three weeks. No major news and shares are likely digesting management’s conservatism on the Q1 call, though many analysts think there’s considerable potential to beat. Anything positive around independent agency growth (about 30% of EVER revenue) would likely be good for shares as this half of the industry has been slower to come back than the other half, which is captive carriers like Allstate (ALL). HOLD THREE QUARTERS

Intapp (INTA) remains at buy (upgraded three weeks ago). The latest update was covered last week and relates to comments at the JP Morgan Technology, Media and Communications Conference. It was all about how Intapp is purpose-built for very specific markets (accounting, law, investment banking, etc.) and how the pandemic woke up demand from many clients that had been dragging their feet moving to cloud-based solutions. BUY

RxSight (RXST) continues to hang in there and absorbed the recent $115 million equity offering with little drama. No updates. BUY

Talkspace (TALK) was sold on May 7. SOLD

TransMedics Group (TMDX) hit yet another all-time high this week, though shares are trading down a little today. Still holding onto a gain over 300%. HOLD A QUARTER

Weave (WEAV) recently announced another integration, this time with InfiniteVT, a cloud-based software solution for vision therapy providers. Weave is a software/communications company with a customer experience and payments platform built around a proprietary VoIP (voice over internet protocol) phone system. It’s designed specifically for the unique needs of smaller healthcare and specialty practice offices. Still looking for revenue growth in the mid-teens over the next two years with profitability in Q4 and all of next year. BUY

Zeta Global (ZETA) management continues its road tour, most recently speaking at Craig-Hallum (yesterday) and Jefferies (today). Up next is Bank Of America (June 4), William Blair (June 5), Mizuho (June 12) and ROTH (June 26). No major announcements since earnings. I moved the stock to hold last week given the huge recent run. That’s proven to be the right call as shares have pulled back a little. Maintaining at hold. HOLD

That’s it for this week. Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.

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