The recent outperformance of the Russell 2000 relative to the S&P 500 has been impressive, with the former rallying over 9% in just 14 days. This is the fourth longest streak in 35 years, and it’s worth examining what could drive this momentum in the medium-term.

Firstly, there’s the possibility of retail demand slowing down from now until April. While retail investors have been net buyers of US stocks since the start of the year, their appetite for risk may wane as we approach the end of the calendar year. This could lead to a slight reversal in the Russell 2000’s momentum.

On the other hand, there’s the potential for hedge funds to add to the rally in smaller caps and broaden out their exposure. As MS QDS notes, these flows tend to stop at the end of the month, which could lead to a slowdown in the Russell 2000’s momentum in the near-term.

Ultimately, the medium-term prospects for the Russell 2000 will depend on a combination of these factors, as well as other market and economic indicators. While there are potential headwinds, there are also reasons to believe that the rally could continue. Only time will tell which way the wind will blow.