Small- and mid-cap stocks (SMID), despite bursts of outperformance, have underperformed large-caps year to date - as they have over the past five years. But they may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from unrest in the Middle East, the Russian invasion of Ukraine, issues in China, or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky, but despite those risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 20% of the U.S. stock market's capitalization is comprised of SMID stocks.

Ulta Beauty is a leading retailer of cosmetics, fragrances, skin care, haircare, bath, and beauty products, with a salon services segment specializing in hair styling and make-up. Founded in 1990, the company is based in Bolingbrook, Illinois, and has over 20,000 full time employees. The company operates about 1,400 retail stores across 50 states.

When looking for potential relative strength, we note that the Russell 2000 (IWM) continues to have a very messy long-term chart -- but it's possible that a large cup-with-handle pattern is being traced out. An index break over the prior high at 235 from late 2021 would complete the pattern. As long as that breakout holds, small-caps could have a lot of room on the upside. Relative strength for the IWM versus the S&P 500 is still in a downtrend, but has flattened since late 2023. The iShares Core S&P Small Cap (IJR), which is the ETF for the S&P SmallCap 600 (SML) index, looks a bit better. We like this chart more than the IWM chart as it is less volatile and closer to making an all-time high. However, in recent years, IWM and IJR have performed in-line with each other. The iShares MSCI Emerging Market ETF (EEM) remains weak on both an absolute and relative basis. The EEM does well when the U.S. Dollar Index (USD) falls and does terribly when the greenback is rising, this as the two are highly negatively correlated. Unless the dollar really breaks down, we would not invest in EEM, which has trailed the '500' since October 2010. Most of the big moves in Bitcoin have been highly negatively correlated with the USD. After a five-wave move higher, Bitcoin looks to be tracing out a bullish flag. For Bitcoin to break to all-time highs, we likely need the USD to continue lower. The COT data for the greenback just turned bullish, which could hurt Bitcoin. For now, we would be patient and wait for a break out of the flag. And, of note, there are many other ways to play crypto. Meanwhile, there is an interesting technical dynamic occurring that could have implications for other markets. The type of technical analysis is called intermarket analysis, made famous by John Murphy, CMT. The markets include the U.S. Dollar Index (USD), gold and silver, emerging markets, and Bitcoin. While the price charts of these markets are always the most-important barometer -- and some of the assets are stretched to the upside (metals) and the downside (greenback) -- the Commitment of Traders (COT) data lines up very well with reversals in the markets. The dollar is negatively correlated to a high degree with all the above assets. Using COT data over many decades has allowed us to make many non-consensus and reversal calls. But it can also be very frustrating because the smart-money commercial hedgers can be very early when accumulating a falling asset, and also early when selling a rising asset. In recent history, their timing toward the greenback has been very good. For instance, hedgers were bullish in early 2021 and in mid-2023, and were bearish in late 2021/early 2022, in October 2023, and in June 2024. At the same time, large speculators (hedge funds) did the opposite, and each time, it was quite effective to follow the hedgers. The COT data just turned bullish on the dollar, this as the USD is oversold, testing chart support near 100, and with sentiment that is crashing. At the same time, gold (especially) is very extended, the COT data is terrible, and sentiment is very bullish. Indeed, the ebb and flow of the financial markets never stops.

With 1,385 stores at the end of fiscal 2023 and a partnership with Target, Ulta Beauty is the largest specialized beauty retailer in the US. The firm offers makeup (41% of 2023 sales), fragrances, skin care (19% of sales), and hair care products (19% of sales), and bath and body items. Ulta offers private-label products and merchandise from more than 500 vendors. It also offers salon services, including hair, makeup, skin, and brow services, in all stores. Most Ulta stores are approximately 10,000 square feet and are in suburban strip centers. Ulta was founded in 1990 and is based in Bolingbrook, Illinois.