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The strength of the Russell 2000 this week cannot be denied. The index, and small stocks generally, posted heady gains even as their larger peers seemed ready to turn over. But is it really the paradigm shift some commentators suggest? Does it signal an increased risk appetite by investors, or a broadening of the rally?

At least so far, the answer has to be "no." While smallcap stocks have led this week, they also led in the first half of September, then lagged in the second half, then led in the first half of October, and lagged in the second half of October and most of November. Even after this week's move, smallcaps lag their larger peers over the last 3 months. Perhaps that will change, but until it does it's hard to draw any broader significance from the move.

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Investors looking to play smallcap strength might be better off looking at individual names. The smallcap indexes, right now, are not telling us much at all.

DISCLOSURE: None in stocks mentioned. Effectively short smallcap through an inverse ETF, and long some individual smallcaps (overall posture net short).




Source: Are Small Cap Stocks Really Outperforming Large Caps?