The smaller companies and small-cap exchange traded funds (ETFs) are beginning to pull ahead.
Over the past week, the Russell 2000 Index rose 3.4% while the S&P MidCap 400 Index gained 3.2% and S&P 500 added 2.1%.
The small-cap segment has been gaining momentum in recent months, jumping on the risk-on sentiment after the Fed stated it would only hike interest rates two times later this year, or downwardly revised from the four hikes it expected back in December. The extended low-rate environment has also been a boon for smaller companies that have capitalized on cheap debt in their balance sheets.
Small-caps, though, can still navigate through a slowly rising rate environment. Smaller companies, which focus on U.S. markets, are less exposed to a stronger U.S. dollar as rates rise, which would more negatively affect larger corporations with a global footprint. Additionally, periods of rising rates also coincide with expanding economies, which often benefit smaller companies.