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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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