Stock Market Today: Small-Cap Stocks Lead in Low-Volume Session

It was another low-volume session for most stocks Tuesday, with many investors in wait-and-see mode ahead of next week's Fed meeting. 

Still, there was plenty of action to be seen elsewhere, including a major rally in small-cap stocks and continued upheaval in the cryptocurrency space. 

On the heels of Monday's headlines that the Securities and Exchange Commission (SEC) is suing Binance, the world's largest cryptocurrency exchange, the regulatory agency said today that it has filed a lawsuit against U.S.-based crypto trading platform Coinbase Global (COIN, -12.1%). The SEC alleges that COIN failed to register as an exchange and be subject to federal oversight while allowing trading in at least 13 digital assets the regulatory agency categorizes as securities.

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"The SEC looks like it is playing Whac-A-Mole with crypto exchanges," says Edward Moya, senior market strategist at currency data provider OANDA. "With most exchanges offering a wide range of cryptos, it seems the regulatory hammer will hit them all as too many of the blockchain protocol cryptos are being deemed as securities by the SEC." 

GitLab is the latest AI stock to soar

Another big mover today was artificial intelligence (AI) play GitLab (GTLB), which soared 31.2%. On Monday morning, the software developer said first-quarter revenue surged 45% year-over-year, helped by a 39% increase in annual recurring revenue from customers with more than $100,000. Additionally, GitLab detailed AI initiatives, including a partnership with Alphabet's (GOOGL) Google Cloud to broaden its AI-assisted capabilities. 

What's more, the company unveiled its plans to make money off its AI offerings. "One of the key questions around AI features across any company has been the path to monetization," said Truist Securities analyst Joel Fishbein Jr. (Buy) in a note to clients. "On the conference call, GitLab indicated their plan to implement a $9-per-user-per-month charge for their first expected generative AI feature, AI-assisted code completion, which management noted is reflected in their updated guidance," the analyst said. So far this week, GTLB is up 37.8%.

As for the major indexes, the Dow Jones Industrial Average (+0.03% at 33,573), S&P 500 (+0.2% at 4,283) and Nasdaq Composite (+0.4% at 13,276) made modest moves. But the real action was seen in small-cap stocks, with the small-cap benchmark Russell 2000 surging 2.7% to 1,855.

"On the surface it doesn't look like a lot is going on in the stock market, but under the surface, there is a massive rally in the small-cap stocks," says Louis Navellier, chairman and founder of Navellier & Associates. That's because Russell is in the process of reconstituting its indexes, a process which will be finalized after the markets close on June 23. "The stocks that are being added to the Russell 3000 and Microcap indices naturally benefit from this index realignment," Navellier says.

Regional bank stocks boost Russell 2000

One specific pocket of strength among small caps today were regional bank stocks. Several names within the sector tumbled yesterday after a Wall Street Journal article suggested regional banks could face stiffer regulations following the collapse of several financial firms earlier this year, including Silicon Valley Bank. 

But today, many of these stocks bounced, led by gains in Western Alliance (WAL, +6.1%), PacWest (PACW, +8.1%) and Zions Bancorp (ZION, +4.9%). This helped boost financials (+1.3%) to the top of the sector leaderboard, followed by consumer discretionary stocks (+1.0%) and energy stocks (+0.8%). At the other end of the spectrum were healthcare (-0.8%) and consumer staples stocks (-0.5%), which both finished the session in the red.

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