Small-Caps Continue to Shine

Ironically, McManus believes small-caps are historically rich vs. big-caps on the basis of earnings yield (the inverse of price-to-earnings). But their current outperformance may be "a function of a much better earnings recovery -- and perhaps also a longer one -- for smaller companies, many of which seem to gain from a broadening trend of pricing power," he wrote.

This fits with his macro view that the economy isn't as strong as bulls contend. "The small-caps may continue to outperform in a market like the status quo, where the Fed cannot afford to upset a weaker-than-normal recovery and thus must tolerate sustained period of broadening pricing power," he wrote.

Stop Making Nonsense

Bollinger, who has (correctly) recommended small-caps over large-caps since at least mid-2000, acknowledged rising anxiety among investors to move back to big-caps. "So maybe there will be a period where large-caps enjoy relative performance," he said. "But there's no sign of it yet, and [investing based on] anything without present evidence is nonsense."

Nonsensical or not, the lure of big-caps has become tantalizing to many, given recent market upheaval and signs of relative strength in mega-caps such as Microsoft (MSFT), General Electric (GE) and ExxonMobil (XOM).

Microsoft is one of the favorites of Vadim Zlotnikov, chief investment strategist at Sanford C. Bernstein, who has an overweight recommendation on tech and a preference for "the most stable -- and often larger-cap -- areas of the sector."

Other software favorites of his include SAP (SAP), Synopsis (SNPS), Adobe (ADBE), Mercury Interactive (MERQ) and Oracle (ORCL); notably, they all sidestepped the warnings barrage coming from the sector.

Zlotnikov also recommends big-cap IT services firms such as SunGard Data Systems (SDS) and Accenture (ACN), as well as semiconductor-equipment plays such as KLA-Tencor (KLAC).

Again, his is a recommendation of big over small only within tech, but it raises a final point: While small has persistently outperformed large in the past five years, the small-cap value vs. growth trade has been "much more volatile" during the same period, Bollinger noted, expressing optimism about growth.

Then again, Bollinger is upbeat about the economy. "Chat about economy slowing is a prayer," he said, providing another reason why he thinks small-caps will continue to shine.

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