What's going on?

US small capitalization (a.k.a. �small cap�) stocks � typically companies with a market value of less than $1 billion � continued their ascent on Tuesday. They�re up by almost 10% this year compared to larger stocks� 4% average rise.

What does this mean?

There are a handful of potential reasons why investors have bought smaller stocks, helping them to their best six-week period since 2016 � including the US government�s corporate tax reform and the country�s strong economic growth so far this year. These factors help all US companies, but smaller companies in the US tend to be domestically focused (or have limited international operations) � which means that tax savings, for example, impact all of their business, not just part of it � resulting in a bigger boost to current profits than for some larger companies.

Why should I care?

For you personally: Choose your small cap investments wisely.

Partly because of their size, small cap stocks often move in the same direction at the same time (i.e. they�re correlated) � so some investors tend to buy and sell this group together in a basket (a.k.a an index). Two of the biggest small cap indices in the US are the Russell 2000 and S&P 600 � but they don�t contain exactly the same stocks, so they perform differently. While S&P�s small cap index is up almost 11% this year, Russell�s is only up 9%.

For markets: Large cap stocks have lumbered.

Large US stocks are having a rocky 2018, partly in response to investors� concerns about a global trade war. Some US steel stocks have risen, probably because they stand to benefit if it�s more expensive for Americans to buy steel from outside the US. But these steel companies are typically smaller than the likes of Boeing and Caterpillar � both of which use a lot of metal to build their products, and whose shares have fallen in anticipation of rising costs.