If history is any guide, now may be a good time to load up on small-capitalization stocks.
Ari Wald, head of technical analysis at Oppenheimer, studied the moves of the Russell 2000 index of small-cap stocks and the S&P 500 index over the last 35 years. And he found that the Russell 2000 outperformed the S&P 500 by an average of 1 percentage point in December.
In addition, the Russell 2000 experienced its three biggest months of outperformance over the S&P 500 in the December through February period.
"That at least mitigates some of the trend concerns that we’re seeing,"
Wald told CNBC/Yahoo Finance. "They [small-caps] could start to perform in line with big caps."
The S&P 500 has returned 14.1 percent so far this year, compared to only 6.3 percent for the Russell 2000.
Wald also cites a strong technical indicator for small-cap stocks. "Recently we’ve seen the Russell 2000 move back above its 200-day moving average. It’s only a matter of time before this index breaks out to the upside."
Small-cap stocks outperformed large-caps in the second half of October, Venu Krishna, head of equity-linked strategies research at Barclays,
wrote earlier this month in a commentary obtained by Barron's.
And small-caps are poised for further gains, due in part to their "greater exposure to an improving domestic economy," he said. Large companies earn much of their revenue overseas.
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