Market Overview

Why The Small-Cap Surge Is More Important Than You Think

Why The Small-Cap Surge Is More Important Than You Think

The recent surge in small cap stocks is sending a broader signal to investors: buy all stocks, said Ryan Detrick, senior market strategist at LPL Financial.

What Happened

Small cap stocks are experiencing their best winning streak since 2013 after eight straight days of gains, Detrick said during a Wednesday "Trading Nation" segment on CNBC. While this is good news for investors with exposure to small cap stocks, it may be even more encouraging for investors with exposure to large and mega cap stocks.

In the last nine instances the small cap index had a winning streak of at least eight days, the S&P 500 index moved higher by 6.4 percent in the six-month period that followed, Detrick said. Encouragingly, small caps continued to perform well — but the S&P 500 "does a little better," he said. 

Why It's Important

If past history is any indication of future performance, S&P 500 stocks should move higher but the road will be bumpy, Detrick said. The path ahead for large cap stocks will be "anything but smooth," although this should be expected after investors were "spoiled" with a 2017 that passed without a 10-percent correction, he said. 

What's Next

"Small-cap leadership is a good thing," Detrick said. "It could be carving the way potentially for this bull market to continue as the S&P's second half of the year also does well."

The case for appreciation in large cap stocks over the coming months is based on expectations for earnings growth, Detrick said. In 12 out of the 12 times since 1990 when earnings grew by double digits, the S&P 500 moved higher "every single time," he said. 

"Earnings drive long-term gains," he said. "We'll still side with the bulls here led by earnings."

Related Links:

Investors Appear To Like Small Caps Amid Continued Trade Worries

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