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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

Mike Allen, author of AM
3 hours ago - Politics & Policy

Biden adviser Cedric Richmond sees first-term progress on reparations

Illustration: "Axios on HBO"

White House senior adviser Cedric Richmond told "Axios on HBO" that it's "doable" for President Biden to make first-term progress on breaking down barriers for people of color, while Congress studies reparations for slavery.

Why it matters: Biden said on the campaign trail that he supports creation of a commission to study and develop proposals for reparations — direct payments for African-Americans.

Cyber CEO: Next war will hit regular Americans online

Any future real-world conflict between the United States and an adversary like China or Russia will have direct impacts on regular Americans because of the risk of cyber attack, Kevin Mandia, CEO of cybersecurity company FireEye, tells "Axios on HBO."

What they're saying: "The next conflict where the gloves come off in cyber, the American citizen will be dragged into it, whether they want to be or not. Period."

Cedric Richmond: We won't wait on GOP for "insufficient" stimulus

Top Biden adviser Cedric Richmond told "Axios on HBO" the White House believes it has bipartisan support for a stimulus bill outside the Beltway.

  • "If our choice is to wait and go bipartisan with an insufficient package, we are not going to do that."

The big picture: The bill will likely undergo an overhaul in the Senate after House Democrats narrowly passed a stimulus bill this weekend, reports Axios' Kadia Goba.