Despite bursts of outperformance, small- and mid-cap stocks (SMID) 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. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the trade and tariff debate, or 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. Finally, there are long stretches in the record books when SMID stocks have outperformed 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.

Ciena participates in optical transport and switching, converged optical Ethernet solutions, carrier Ethernet, and global services for its customers. The addition of Nortel MEN in March 2010 more than doubled the revenue base. Ciena operates in three segments: Network Platforms, representing 75%-80% of revenue; Software & Related Services, 6%-8% of revenue; and Global Services, 12%-14% of revenue.

The stock market may have hit a short-term technical low on Tuesday, as the S&P 500 (SPX) and Nasdaq 100 (QQQ) bounced off their 61.8% retracements of the rally since August. And yet, the SPX dropped to 5,528 midday (the lowest level since September 2024), rallied back into positive territory (peaking at 5,636), but once again pared a lot of its intraday gains -- leaving us with more questions than answers. The SPX closed at a new pullback low, falling 0.8%, the Nasdaq dropped only 0.2%, and the QQQ fell 0.3%. Some of the biggest gainers came from the former leaders that are also the most beat-up issues. These stocks mostly are in Information Technology (the beneficiaries of the AI and data center build outs, and utilities). The largest gainers on the SPX were SMCI, LUV, CRWD, VST, and GEV. On the QQQ, the winners were MSTR, MDB, and APP. Unfortunately, these stocks need a lot of repair work in order to correct the massive technical damage that has been inflicted on their charts. The 14-day Relative Strength Index (RSI) has cycled into very oversold territory at 28.4%, which is the most-oversold reading since September 2022 near the bear-market bottom. The VIX Volatility Index fell on the day and is back inside its upper Bollinger Band (BB). A lower close by the VIX will give us a short-term VIX sell signal and an SPX buy signal. There are plenty of breadth measures putting in higher lows. The percentage of stocks in the SPX that are above their 50-day is higher than it was earlier this year, but the percentage of stocks above their 200-day is lower (at 42%) and in danger territory. The percentage of QQQ stocks above their 20- and 50-day is higher than earlier this year, but only 43% of issues are above their 200-day.

Stocks had another good day on Wednesday, with leadership from small- and mid-cap issues. The S&P 500 (SPX) gained 0.4% and is closing in on its all-time high of 6,119 from January 23. The Nasdaq rose 0.2%, the Nasdaq 100 tacked on 0.4%, and the S&P 400 and the S&P 600 both popped 0.9%. It's hard to say if it was a risk-on day as leadership came from Real Estate, Information Technology, Financial, Utilities, Healthcare, and Consumer Staples, with Consumer Discretionary and Communication Services bringing up the rear. Of course, individual stock names can hurt a sector, with TSLA off 3.6% and GOOGL losing 7.3% after reporting 4Q EPS. Our short- to intermediate-term technical scorecard is bullish for the major indices. For the SPX, the five-day/13-day and eight-day/21-day exponential moving average (EMA) crossovers are bullish; the Vortex Indicator and the 21-day rate-of-change (ROC) are bullish; the CTM Trend Meter is improving but only slightly positive; daily momentum is bullish; and no chart damage occurred during the recent pullback. Certain breadth measures are only neutral to slightly positive. Some 62% of SPX stocks above their 200-day average, while the bullish percent index is only 55%. Both these measures have been in downtrends since late September 2024. Our QQQ scorecard looks at the heavyweights in the index, as the top 10 make up 51% of the ETF. AAPL (9% weighting), NVDA (7%), AMZN (6%), GOOGL (6%), AVGO (4%), META (4%), TSLA (3.6%), COST (3%), and NFLX (2.6%) are all above their 200-day average. Only MSFT (8%) is below its 200-day average, and not by much. (Mark Arbeter, CMT)