The small-cap Russell 2000 has advanced 10.4% in July, while the large-cap S&P 500 (SNPINDEX: ^GSPC) has essentially traded sideways for the month. The last time the Russell 2000 outperformed the S&P 500 by such a wide margin during any month was February 2000, according to Forbes.

Tom Lee, head of research at Fundstrat Global Advisors, believes that pattern will continue in the coming months. He recently told CNBC the Russell 2000 could rise another 40% by the end of the summer, implying the index could top 3,100 in the not-too-distant future.

His reasoning: Small-cap companies trade at historically cheap valuations relative to large-cap companies. Additionally, the Federal Reserve is expected to cut its benchmark interest rate soon, and lower rates should have a disproportionately positive impact on small-cap companies.

Continue reading

Source Fool.com