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Data: FactSet; Chart: Axios Visuals

Despite the incredibly weak job market investors are betting the U.S. economy will continue to strengthen and are pouring money into small-cap stocks.

What's happening: Small companies' stocks have lagged their large counterparts for years as bigger has meant better on Wall Street. But over the past six months, that trend has reversed and investors are playing small ball.

What it means: "Small cap stocks tend to outperform as the economy improves," ADP senior economist Nela Richardson tells Axios in an email.

  • "The prospects for continued economic recovery are solid given the vaccine rollout, pent-up consumer demand, ongoing monetary stimulus and perhaps more fiscal stimulus. Hence, conditions are set for which small caps have outperformed historically, (even though the jobs recovery has cooled recently)."

The big question: "Does the rally have legs?" asks Richard Steinberg, chief market strategist of the Colony Group.

  • "As long as data show that vaccines are starting to work and there’s a policy to get more shots in people’s arms we are going to get more confidence."
  • "We’re seeing the numbers in earnings too. There’s leverage to the reopening."

Watch this space: The widening U.S. Treasury yield curve (the 5-year/30-year spread rose to 1.5% Monday, the highest since September 2015) also provides a boost for small-cap stocks because banks and financial services companies, which see their share prices rise as longer-dated bonds' yields go up, are over-represented among small-cap indexes, Steinberg adds.

  • "The yield curve and reopening and fiscal stimulus all play into small caps with a domestic focus."

But, but, but: For the bounce in small-cap stocks to continue, the market's extremely rosy expectations will have to become reality.

Go deeper

51 mins ago - Health

Nevada to impose insurance surcharge on unvaccinated state workers

Nevada Gov. Steve Sisolak. Photo: Ethan Miller/Getty Images

Nevada's Public Employees' Benefit Program Board voted Thursday to charge workers enrolled in public employee health insurance plans a surcharge of up to $55 a month if they're not vaccinated against COVID-19, the Las Vegas Review-Journal reports.

Why it matters: Nevada is the first state to announce such a move, per AP.

Oklahoma sues Biden administration over Pentagon vaccine mandate

Secretary of Defense Lloyd J. Austin testifies before a House Armed Services Committee hearing on Sept. 29 in Washington, D.C. Photo: Olivier Douliery/Pool via Getty Images

The state of Oklahoma filed a lawsuit against the Biden administration on Thursday in an attempt to block the enforcement of its vaccine mandate for federal employees.

Why it matters: The move comes one day after Defense Secretary Lloyd Austin denied Oklahoma Gov. Kevin Stitt's (R) request to exempt the state's National Guard from the mandate.

Congress passes stopgap funding bill to avert shutdown

Senate Majority Leader Chuck Schumer. Photo: Chip Somodevilla/Getty Images

The Senate voted 69-28 to pass legislation Thursday night to fund the government until February 18.

Why it matters: The move staves off a government shutdown but lawmakers still have a busy month ahead: Congress needs to work out a deal to raise the debt ceiling in a few weeks and Democrats are trying to pass their behemoth social spending bill.