Exchange traded funds that follow small and mid-cap U.S. stocks are making up for lost time as they follow the S&P 500 above the 200-day moving average, a key technical indicator that financial advisors can use to position portfolios.

Although small-cap ETFs led the charge during the October rally, they haven’t outperformed the S&P 500 since then. Small-caps leading the market is a good sign because it signals investors are comfortable taking on more risk.

SPDR S&P 500 (NYSEArca: SPY) crossed its 200-day moving average back in December. More recently, iShares Russell 2000 Index (NYSEArca: IWM) and SPDR S&P MidCap 400 (NYSEArca: MDY) have broken above their 200-day trend. [Underperforming Small-Cap ETFs Eye 200-Day Average]

“Like the S&P 500, the Russell 2000 is also trading towards the top end of its multi-month range. Whether the small caps break out or break down remains to be seen,” Investors Intelligence said in a Jan. 6 note.

In the financial sector, smaller regional banks have been outperforming the large-cap banks. [Preferred Stock ETFs, Regional Banks Display Financial-Sector Strength]

According to a recent research report, Steven DeSanctis, small-cap strategist at Bank of America Merrill Lynch, said that small- and mid-cap U.S. stocks might reveal strong fourth-quarter results, reports Jonathan Burton for MarketWatch.

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