Are small caps seeing the breakout investors have been waiting for?

For years, investors have been looking for a big breakout in small-cap stocks. The stars may be aligning for one. The iShares Russell 2000 ETF (IWM) , which tracks the small-cap benchmark, jumped nearly 1% premarket Thursday. IWM has also had a strong week, up 2.6%, outperforming the S & P 500 . Driving the big gains in small caps this week is increased hope that the Federal Reserve will soon start cutting its benchmark lending rate after recent data showed weakness in the economy. The CME Group's FedWatch Tool shows traders are pricing in a 93% chance of a Fed rate cut in September. Smaller companies benefit more than larger ones from easier monetary policy because they rely more on borrowing. If the Fed cuts rates, that lowers the cost of capital for smaller outfits, making it cheaper fo