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Why these stocks are stuck in a rut

Why these stocks are stuck in a rut

Small-cap stocks are falling behind.

The Russell 2000 has largely outperformed the S&P 500 throughout the year, but in the past month, the small-cap index is down more than 4 percent, compared with the S&P's loss of 1.4 percent in the same time period.

According to Gina Sanchez of Chantico Global, $2.3 billion came out of the iShares Russell 2000 ETF last week. Sanchez said the drop could mean investors are shifting funds overseas.

"What's really been fueling the Russell up until now has been their domestic focus, the fact that they're not exposed to that very strong dollar that's weighing down the S&P 500," Sanchez said Friday on CNBC's "Trading Nation." "[Now] investors are rotating their money, but they're not rotating it into the S&P 500."

She said with the turmoil of Greece's debt deal over, foreign stocks are looking more attractive.

According to fund tracker EPFR, European equity funds are on track to hit record inflows for the summer, having seen $10 billion in July alone, the Financial Times reported.

Kathy Lien of BK Asset Management said investors are also watching for signs of trouble at home.

"The market in general seems to be reacting more to negative U.S. reports than it is to positive reports," Lien said, noting that new U.S. single-family home sales for June dropped 6.8 percent to 482,000, the lowest number seen in seven months.

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"Even though overall the economy seems to be improving, everyone's fixating on the weakness, and I think that's affecting the Russell," she said.

Another factor in the Russell's drop is a potential rate hike, Lien said. The Federal Reserve has discussed raising interest rates as early as September this year.

Lien said small-cap stocks tend to do well ahead of rate increases, but fall off as the actual rate hike draws closer. "As we get closer to Fed tightening, the ones that have outperformed the most tend to fall the fastest," she said.

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