Will Falling Bond Yields Send These 2 Small Caps Soaring?

Key Points

• Recent trade tariff volatility has caused the small cap stocks index to hold stronger than the broader S&P 500 index in recent weeks, meaning more strength ahead.
• Institutional buyers have increased their exposure to these small-cap names this quarter, expecting more to follow.
• As the fundamental views play out, two small-cap stocks see double and triple-digit upsides in the coming months.

The recent trade tariff announcements rolled out by President Trump have created some volatility in the broader stock markets globally. Where capital flows during these times is often the best piece of information that retail investors can follow to get their portfolios to land on the right side of history. With this in mind, here’s where the price action is headed.

During volatility spikes in the S&P 500 index over the past couple of weeks, investors can see how the iShares 20+ Year Treasury Bond ETF NASDAQ: TLT commanded the most upside instead of dollars or gold, as it had been doing so over the past two or three years. This means that, as bond prices go up, their yields will inversely come down.

This might explain why small-cap stocks, representing the domestic side of the United States economy, held strong during these sharp selloffs in the broader S&P 500. Investors can track this space through the iShares Russell 2000 ETF NYSEARCA: IWM, but more than that, there are a couple of stocks that are worth taking a deeper look at for the coming months, names like Plug Power Inc. NASDAQ: PLUG and even Riot Platforms Inc. NASDAQ: RIOT all exposed to what the narrative might be behind the stronger performance in small-cap stocks amid lower bond yields.

What the Small Cap ETF Tries to Tell You

The first week of February 2025 showed investors a couple of patterns between the small-cap ETF and the S&P 500. The first is the period from February 5th to the 7th, when President Trump announced the rollout of new tariffs on Canada and Mexico.

While the S&P 500 remained flat with a 0.5% performance, small caps outperformed by over 2% during these two days. This way, investors can safely assume that they are better for small caps when things are good. On the flip side, when volatility came after this period, the small-cap ETF declined much less than the S&P 500 did.

So when things aren’t that great, they’re still safer and better for small-cap stocks, and here’s why. As bond yields start to come down, the environment for doing business in the domestic economy improves a tailwind that is coupled with the fact that tariffs might turn demand and capacity to these same domestic players.

Understanding that this upside and downside price action in small caps compared to the rest of the market is nothing but bullish, it should come as no surprise for investors to learn that up to $6.4 billion in institutional capital made its way into the small-cap ETF over the past quarter alone, a sign of further confidence in this space for the rest of 2025.

New Oil Demand Can Push Plug Power Stock Higher

This might be confusing at first. Why would a green energy stock do well when the price of oil is set to rally? That’s because more expensive oil and oil-derived fuel sources typically drive interest in looking for alternative energy sources, ones that are more accessible from a cost perspective.

Knowing that Goldman Sachs analysts like oil as a commodity play this year, as mentioned in their 2025 macro outlook report, and Warren Buffett being in the energy sector by buying up to 29% of Occidental Petroleum Co. NYSE: OXY, investors can lean on this thesis today.

This small-cap energy stock has another hidden benefit besides this fundamental tailwind. Wall Street analysts now see a consensus price target of up to $4.12 a share, calling for up to 130.7% upside from today’s prices and a smooth ride higher for investors.

Lower Yields Could Mean Higher Bitcoin, Good for Riot Stock

Everyone has focused on MicroStrategy Inc.'s NASDAQ: MSTR massive run by bloating its balance sheet with Bitcoin. However, not many are aware of similar, much smaller businesses that follow the same strategy of acquiring Bitcoin to boost the company’s valuation.

This is where Riot stock comes into play. Riot is a Bitcoin farming company that not only holds tons of Bitcoin on its balance sheet but actively farms more Bitcoin every single month. Knowing that this business has proven successful in the past, some Wall Street analysts feel comfortable boosting this stock to higher prices.

With a $17.55 per share price target, investors can note the 50% upside present today in Riot Platforms stock moving forward. This is a vote of confidence that lower bond yields could help Bitcoin’s price move higher, which would significantly boost the company’s bottom line.