Biotechs and small caps are the top performers on Wall Street, with the health-care subsector up about 8 percent for the week and the Russell 2000 hitting new highs.
Investors are expected to continue pouring money into biotechs and small caps because the sectors are insulated from the impact of the rising dollar.
"We have priced in bad news of the stronger dollar, but we haven't priced in the good news of the stronger dollar," said Art Hogan, chief market strategist at Wunderlich Securities.
The iShares Nasdaq Biotechnology ETF (IBB) is up 20 percent so far this year. Of the 150 stocks in the IBB, nearly half, or 64, of the names have more than doubled from their 52-week lows. Seventeen of the names (11 percent) are up more than 50 percent, while just 28 (19 percent) are lower year-to-date.
With the Nasdaq, led by biotechs, outperforming the other major indices on Thursday, Hogan said, "there is some selectivity going on. This is a stock pickers' market. The negative impact of the strong dollar (is not affecting) the S&P small-caps and the Russell 2000."
It's a "very domestically focused strong dollar play," he said.
Companies with smaller market capitalizations, such as the average $1.3 billion for Russell 2000 names, tend to focus their business on the United States and aren't easily impacted by fluctuations in the dollar. Lowered costs from relatively cheaper imports also help domestically oriented firms.
Blue chips or S&P 500 companies have market caps in the tens or hundreds of billions and often operate around the world.
The Russell 2000 extended gains on Friday, trading above Thursday's record close. The small-cap index began rallying after the Fed's dovish statement on Wednesday afternoon. The S&P mid-caps also hit a new high.
Analysts said the rally will likely continue and could extend this historical bull market.
"The Russell 2000 breakout supports follow-through of the small caps," said Katie Stockton, chief technical strategist at BTIG. "You can get near-time to 3 percent higher."
The S&P 500 faces "just minor resistance" at 2,120 and can also turn higher as market participation increases and the VIX holds lower, Stockton said.