Big demand for small-cap stocks

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Demand for small-cap stocks is increasing relative to established large-cap names, a divergence that may signal continued investor confidence in U.S.-centered growth.

The Russell 2000 index, which is most sensitive to domestic economic expansion, hit a new record Monday, surpassing its previous high of 1,063.52 on Aug. 5.

The benchmark has gained more than 6 percent in the past three months, compared with gains of 3 percent for the S&P 500 and of 1 percent for the Dow. The Russell has soared 24 percent this year.

Small-cap leadership is usually considered a bullish sign for the overall market, according to market professionals, as the sector is considered a gauge of the health of the domestic economy.

Technology has also been a bright spot for the market in the past three months, with the Nasdaq up 8 percent.

Should investors take any clues from this trend?

Dan Greenhaus, chief global strategist at BTIG, holds that improvement in Europe and China should benefit large caps over the next few months, while Art Hogan, managing director at Lazard Capital Markets, says investors should focus on names prone to capital appreciation on a cyclical basis versus defensive stocks, as things appear to stabilize in some emerging economies.

3-Mos % Chg.
YTD % Change
S&P 500 Index 1687.99 3.16 18.35
Dow Jones Industrial Average 15376.06 1.32 14.64
Nasdaq Composite Index 3722.184 7.86 23.01
Russell 2000 Index 1053.98 6.5 24.09
S&P MidCap 400 Index 1229.4 4.5 20.12
Dow Jones Transportation Avg. 6523.42 2.87 22.93