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Small-cap bear warns investors about the record rally

PNC Financial is souring on small caps' record run.

In an interview on CNBC's "Trading Nation," the firm's co-chief investment strategist questioned the rally's sustainability.

"We would tend not to chase the small-cap run," Amanda Agati said Wednesday. "It's really hard to say 'back up the truck here, and put new capital to work in small caps.'"

Agati's bear case is in the minority.

"They are clear beneficiaries of the tax package, clearly insulated from trade and protectionist concerns — as well as movements in the dollar. So, they really are in a sweet spot," she said.

But her main issue is with the rally's intensity. She warned that it is becoming overextended, and the group could soon find it tougher to make profits.

"It's amazing that the small caps continue to hit new highs," she said.

The Russell 2000, which is composed of small-cap stocks, logged its 18th record close for the year on Wednesday. It's up 7 percent in just the last month and 20 percent over the past year.

"If you want exposure to small caps, we'd be very selective — focusing on higher quality names and not just recommending buying the index," Agati said.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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