Can US small caps sustain their strong performance in 2017?

Rallied last year

Data indicates 2016 was a terrific year for small-cap stocks and an even better year for small-cap value stocks and a highly rewarding one for cyclical sectors.

Arguably even more important is what these developments may be telling us about the subsequent direction of small-cap equity returns.  These three reversals—positive results for small-caps, leadership for value over growth, and outperformance for cyclicals—should be key in setting the tone for the direction of small-caps going forward.  They coalesced around the central, normalising force of rising interest rates. As rates continue to rise and access to capital begins to contract more consistently, the number of bankruptcies should escalate, restoring the healthy Darwinian force th...