Small-Cap Rally Indicates Increasing Risk Appetite

Source:

"Because small-cap stocks are generally more volatile than their large-cap counterparts, their outperformance indicates that the investors are now willing to take on more risk."

It seems that the investors are becoming bullish on the small cap stocks. Since the beginning of last month, iShares S&P Small Cap 600 Index (IJR) ETF tracking the small cap sector of the US equity market is up 6.81%, while SPDR S&P 500 (SPY), tracking the large cap sector has risen only 2.50%.

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Since the small cap stocks are generally more volatile than their large cap counterparts, their outperformance indicates that the investors are now willing to take on more risk in their portfolios. (Read: Three Best Performing Small Cap Growth ETFs)

Looking at slightly longer-term picture, these stocks (and related ETFs), had underperformed the large cap stocks earlier in the year but with the recent outperformance, IJR is up 12.25% year-to-date, only slightly behind SPY, which is up 12.95%. (Read: Three Impressive Small Cap Dividend ETFs)



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Do you think that the investors are becoming more optimistic about the economic recovery or they are becoming more confident that the Fed and the ECB will announce additional stimulus soon?

Neena Mishra
Zacks Investment Research

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