3 Reasons Small Caps are Leading Markets Higher

by Zach | September 30, 2013 12:45 pm

You might not have noticed, but small cap stocks are actually leading the market higher. In fact, the Russell 2000 is within striking distance of its all-time high, while large cap benchmarks still have a bit more to go before they take out old highs.

The trend towards small caps has become particularly pronounced in the past three months with the capitalization level clearly beating out large caps in this time frame. Current performances show small cap ETFs[1] like iShares Russell 2000 Index (IWM[2]) gaining about 13.5% in the time period, with SPDR S&P 500 ETF Trust (SPY[3]) putting up gains of just 8.4% in comparison.

1380137488 scaled 425 3 Reasons Small Caps are Leading Markets Higher

Behind the Surge

There are a couple of reasons for why investors might prefer small caps at this time including the following:

However, some investors are starting to grow concerned by this run in small caps, thinking that this level of outperformance cannot continue. PEs are starting to get a little high for the segment (22.21 forward PE for the S&P 600), while some volatility thanks to D.C. could result in serious profit taking for small caps.

But what do you think about the small cap outlook?

Do you believe that the small cap rally can continue, or is new leadership about to take hold of the market?

Let us know in the comments section below!

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Endnotes:
  1. small cap ETFs: http://www.zacks.com/etf/etf_category_details.php?cat=Small-Cap-ETFs&i=3
  2. IWM: http://studio-5.financialcontent.com/investplace/quote?Symbol=IWM
  3. SPY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPY
  4. Click to get this free report >>: http://www.zacks.com/registration/pfp/?ALERT=RPT_7BST_LP194&ADID=ZACKS_PFP_7BEST_ETF
  5. h: http://www.zacks.com/registration/pfp/?ALERT=ETF225&adid=INVESTORPLACE_CONTENT_ETF_ARTCAT_REAL_TIME_INSIGHT&d_alert=rd_final_rank&t=IJR&split=1

Source URL: http://investorplace.com/2013/09/can-the-incredible-run-for-small-cap-stocks-continue-iwm-sp/
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