First Trust Small Cap Core AlphaDEX Fund (FYX)

On our desk, the macro chatter points heavily toward a structural rotation into small-caps. With Bank of America fund manager surveys showing a net 18% majority expecting small caps to outperform large caps for the first time in 10 months, sentiment is finally aligning with trend metrics. Analysts are pointing to an expected small-cap earnings growth rate of 55%, which gives investors a compelling alternative as mega-cap tech faces escalating capital expenditure pressures. However, traders remain cautious about sticky inflation prints and oil market backwardation potentially forcing the Fed's hand on rates.

From a risk management standpoint, we are watching the broader economic crosscurrents very closely. While fiscal stimulus from the Chips Act and infrastructure programs continues to provide a resilient domestic backdrop, the persistent 'scarcity premium' in crude oil—driven by geopolitical tensions—presents an unpriced hazard. If energy prices remain elevated, it could spark renewed inflationary pressures and challenge the baseline assumption of smooth rate cuts later in the year, introducing mid-term volatility that could shake out highly leveraged positions.

When evaluating equity allocation strategies for our clients right now, the primary thesis relies on durable diversification and targeting productive assets. Market participants are increasingly wary of chasing overextended big tech capex cycles where return on invested capital questions are mounting. Instead, positioning portfolios toward sectors benefiting from domestic policy tailwinds—such as industrials, financials, and targeted small-cap strategies—offers a more balanced risk-reward profile heading deeper into 2026.