NEW YORK (Reuters) – U.S. small-cap stocks look poised to extend a breakout rally, especially if oil prices advance deeper into levels last seen in 2014 to drive further gains in the small energy companies that have provided leadership in recent week, analysts and investors said.
The Russell 2000 index of small capitalization stocks closed at a record high for a third day in a row on Friday and registered its third week of gains, sharply outperforming large-cap stocks on Wall Street, with all three major indexes posting losses for the week.
Russell - Percent - Feb - Low - Year
The Russell is up 11.1 percent since its Feb. 8 low for the year, while the S&P 500 is up just 5.1 percent since that date.
The S&P 600 small-cap index is also at a record high. Energy shares within the S&P 600 have led recent gains, thanks to a jump in oil prices, which analysts said should boost earnings forecasts for the sector.
Outperformance - Stocks - December - US - Tax
The outperformance of small-cap stocks has been driven partly by the December U.S. tax overhaul. The legislation included steep corporate tax cuts that particularly benefited smaller-cap companies, which had been paying higher rates than large-cap companies overall.
Recent trade tensions have also lifted shares of small caps, whose business is largely domestic, along with stronger U.S. economic growth.
Benefits - Earnings - Growth - Growth - Names
Some of those benefits have been reflected in small-cap earnings growth, which has outpaced growth of larger names. First-quarter profit growth for Russell 2000 companies is estimated at 33.8 percent, while earnings for the S&P 500 companies increased 26.2 percent from a year ago, according to Thomson Reuters data.
The S&P 600 energy index is up 31.3 percent for the quarter so far, the best-performing group, followed by health care , up 12.2 percent.
US - Crude - Futures
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