Wall Street is bracing for market turbulence, but investors should be on the lookout for opportunities outside the household names.
“September tends to be a bit of a rougher patch for the market in general,” Tim Urbanowicz, chief investment strategist at Innovator Capital Management, said on Yahoo Finance’s Opening Bid. “When we step back, we also think that there’s opportunities opening up outside of just the Big Tech names and specifically in small caps.”
Urbanowicz said small-cap stocks have lagged the market because of a relative valuation gap. But with growth holding strong, these companies may finally get a bid and start catching up. A balanced mix of large-cap leaders and small-cap holdings could offer growth and relief for portfolios navigating seasonal volatility.
The S&P Small Cap 600 index has gained 6% in the past month, compared to the S&P 500’s (^GSPC) 2% rise.
That doesn’t mean investors should abandon tech giants like Nvidia (NVDA) and Alphabet’s Google (GOOG), as the trade remains intact.
“We don’t think necessarily you need to take your foot off the gas on the Nvidia tech trade, the Big Tech trade,” Urbanowicz said, adding that a little seasonal weakness is likely to continue in the short-term. “But a lot of these other names … the smaller-cap names in particular, I think there are some catalysts here that really call for some attention as we move into the back half of the year.”
Among the “Magnificent Seven,” Urbanowicz singled out Alphabet as a standout. He cited its discounted valuation relative to peers and recent regulatory clarity that could help the company execute its AI strategy. A US judge ruled earlier this week that Google would not be forced into a breakup, thus avoiding the sale of its Chrome or Android divisions. However, Google must share search data with competitors and end exclusive agreements that make it the default search engine on various devices.
“The ruling is very helpful. It removes some of the gray skies [and] gives a very clear runway for their AI ambitions,” Urbanowicz said. “At the end of the day, companies that are going to win out on AI and search are going to be the ones that [have] the interface users are most comfortable with. Being able to keep Chrome is a huge, huge win for the stock.”
The small-cap opportunity comes amid broader market dynamics that are shaping investor behavior. The bond market has been a source of volatility, with US long-term Treasury yields rising as concerns about debt levels and the Federal Reserve’s independence creep back into focus. Rising yields can put pressure on high-growth tech stocks, which rely on low borrowing costs to fuel expansion.
Those aren’t the only factors spooking Wall Street. Urbanowicz noted that Trump’s firing of Lisa Cook should warrant caution when it comes to preparing portfolios, as it could impact inflation. In a similar vein, Trump’s pick for Fed chair could be critical for markets, he added, as the “nomination could trigger bond yields to go higher … and cause equity jitters for fears they will cut just to cut.”
Tariffs are another area of concern. “Investors don’t like the fact that tariff revenue is pulling back,” Urbanowicz said. “We do think … this is a key risk to watch, not just for the bond market, but also for the equity market moving forward [in] US yields.”
Francisco Velasquez is a Reporter at Yahoo Finance. He can be reached on LinkedIn and X, or via email at francisco.velasquez@yahooinc.com.
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