The Russell 2000 index and the Dow Jones Industrial Average have just set the highest weekly closing prices in history.

This phenomenon occurred against the following backdrop: the US is engaged in an active war with Iran, the Bank of Japan is raising interest rates, and US inflation remains high. None of these factors have stopped the stock market from rising.

Since the bottom on March 31st:

The Russell 2000 index has risen by 24%, adding $640 billion to its market capitalization.

The Dow Jones index has risen by 15%. Based on the combined market capitalization of its 30 constituent stocks, this increase is estimated to have added $2 trillion.

The gains in small-cap stocks have been the strongest, and there is a specific reason for this.

Nearly 40% of the debt held by Russell 2000 index companies is floating-rate debt, compared to less than 10% for the S&P 500.

When interest rate expectations change even slightly, small-cap stocks feel the impact almost immediately because their borrowing costs adjust accordingly. This is why the Russell index has outperformed all other major indices this year.

Between 1998 and 2000, the Nasdaq index soared from around 1,800 to nearly 4,800 points in 15 months. That was the last time the US market rose at such a rapid pace before forming a top.

The Russell and Dow Jones indices are now rising at a similar pace. Whether this momentum will end in the same way is an open question.