According to Jinshi Data, demand for small-cap stocks began to rise at the end of June this year, when the Russell 2000 index's expected price-to-earnings ratio was 23 times, almost the same as the S&P 500's 21.2 times. Traditionally, such a small valuation gap is a signal to buy small-cap stocks, and investors will sell large technology stocks and buy riskier small stocks instead.

That lasted for a few weeks until the valuation gap between the two widened, sending it back to levels where traders typically favor large-cap stocks. The index has fallen 6.8% since its July 16 peak.

Some institutional analysts believe that now, as interest rate cuts seem to be imminent and U.S. Treasury yields have fallen sharply, investors are flocking to dividend-paying, low-volatility stocks from utilities to real estate investment trusts. This means that with the two worst months for U.S. stock returns in history, August and September, approaching, stocks other than dividend-driven stocks may suffer more.