Small stocks are about to take over? Wall Street has heard that before.

Trader Gregory Rowe works on the floor of the New York Stock Exchange, Monday, July 22, 2024. – Suddenly, smaller stocks seem to be making bigger noise on Wall Street.

The small stocks in the Russell 2000 index leaped a stunning 11.5% over five days, beginning on July 11. The surge looked even more eye-popping when compared with the tepid gain of 1.6% for the big stocks in the S&P 500 over the same span. Investors pumped $9.9 billion into funds focused on small U.S. stocks last week, the largest amount since 2007, according to strategists at Deutsche Bank.

Of course, this time looks different in some ways. Some of the boost for small stocks may have come from rising expectations for a Republican sweep in November's elections, following President Joe Biden'slast month. That pushed up U.S. stocks seen as benefiting from a White House that could be hostile to international trade, among other things.

She points to how 60% of the companies in the small-cap index struggle with profitability, in part because private-equity firms have already taken many money-making ones out of the stock market. Smaller stocks also tend to be more dependent on spending by consumers than larger companies, and consumers at theCuts to interest rates do look more likely after Federal Reserve officials talked about the danger of keeping rates too high for too long.

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