Small-cap stocks are currently outpacing the performance of larger companies in the US market, signaling a shift in investor sentiment. The Russell 2000 index, a benchmark for small-cap stocks, has shown significant gains relative to the S&P 500.

Factors Driving Small-Cap Outperformance

• Growth Potential: Investors often view small-cap companies as having greater growth potential compared to established large-cap firms.
• Economic Recovery: Small-cap stocks are typically more sensitive to domestic economic conditions, potentially benefiting more from an economic recovery.
• Valuation: In some cases, small-cap stocks may be undervalued compared to large-cap stocks, attracting investors seeking value opportunities.

Potential Risks

While small-cap stocks offer the potential for higher returns, they also come with increased risks, including:

• Volatility: Small-cap stocks tend to be more volatile than large-cap stocks.
• Liquidity: Small-cap stocks may have lower trading volumes, making it more difficult to buy or sell shares quickly.
• Financial Stability: Smaller companies may be more vulnerable to economic downturns or financial challenges.

Investors should carefully consider their risk tolerance and investment objectives before investing in small-cap stocks.