Regarding small caps, they outperformed for so long until recently that the real question is how long the outperformance of large caps will go on for. My guess is that small cap value stocks tend not to be exporters, and that means they're strongly exposed to the declining dollar.
So your view of small cap value stocks should be linked to your view of the dollar.
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Totally agree with your comment about mean reversion, but trends tend to last longer than expected. There was a good article on this recently:
Dec 21 05:56 am
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All Comments by Long-Short Guy »Four Opportunities for 2008 [View article]
Don't Underestimate the Durability of Market Trends
seekingalpha.com/artic...
Regarding small caps, they outperformed for so long until recently that the real question is how long the outperformance of large caps will go on for. My guess is that small cap value stocks tend not to be exporters, and that means they're strongly exposed to the declining dollar.
So your view of small cap value stocks should be linked to your view of the dollar.