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Gains in Small Stocks Highlight Investor Exuberance


Shares of small companies are outpacing their larger counterparts by the widest margin in more than two decades. Behind their rise: confidence among investors that heavy stimulus and coronavirus vaccine deployment will boost the economy.

Through Friday, the Russell 2000 index of small companies had climbed 15% and set 10 closing records so far this year, well above the S&P 500’s 4% rise. That is the largest such gap between the two indexes through Feb. 19 since 2000, according to Dow Jones Market Data. Small-cap stocks and the S&P 500 edged lower on Monday.

The leadership by small companies goes back even further. Over the past six months, they are beating the S&P 500 by about 30 percentage points as investors anticipate greater fiscal spending from the Biden administration.

Among some of the biggest gainers: hydrogen fuel-cell company Plug Power Inc., fast-food chain Red Robin Gourmet Burgers Inc. and retailer Macy’s Inc. All three stocks have more than doubled in the past six months and are up at least 35% in 2021.

Smaller companies are more tied to the domestic economy than their large-cap counterparts, which make more money overseas. Economically sensitive sectors such as energy, materials and banking also account for more of the Russell 2000 than larger indexes. These cyclical groups were battered by the pandemic but are now powering markets to records.

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