Small-Cap Stocks Cause Pain and Rally on Wall Street

Small cap stocks, defined as those with a market capitalization of under $2 billion, have surged 7% since Friday's job report, outperforming the year's best-performing index, the Nasdaq 100. Small caps are highly sensitive to the domestic economy and tend to do better when the economy is improving. They are also highly levered to the financial sector, as this cohort is home to many regional banks. Small caps are highly sensitive to interest rates, as interest payments can consume a big chunk of sales. Investors are questioning whether this latest rotation has legs or if the small cap rally will reverse just as quickly, causing more frustration for investors.