The recent small-cap boom indicates investors' willingness to take on risk.

Small caps may not be receiving money from winning growth trades.

Dave Nadig, a financial futurist and ETF journalist, predicts that investors will continue to purchase.

"He stated on CNBC's "ETF Edge" that the current trend is a diversification trade, as there are flows into various assets. This indicates that individuals are seeking to broaden their exposure, which is wise during an election year."

Nadig argues that increasing portfolio exposure can help mitigate the impact of volatility during the months leading up to presidential elections.

"For the first time in a long time, investors are purchasing value in defensive sectors and small caps. However, they continue to buy other things as well. According to him, this money is coming from the giant bucket of money markets that are sitting out there."

Nadig believes that it is premature to determine whether the gains in the small-cap market are sustainable.

If small caps outperform large caps for two or three months consecutively, it is likely that a significant amount of money will be invested in small caps, Nadig stated.

He stated that if the current situation is merely a diversification trade, it is likely to experience some fluctuations until the end of the year.

The small-cap index, which tracks small caps, fell 0.6% on Friday. However, it outperformed the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average. Additionally, the Russell 2000 gained almost 2% for the week. Despite this, the index has been largely flat since President Joe Biden took office in January 2021.

'I don't suspect this big wave coming out of cash'

Anna Paglia, a State Street Global Advisors employee, believes that interest rate cuts will boost the performance of underperforming sectors.

Paglia, the firm's chief business officer, stated that investors are becoming more comfortable with risk and there will be momentum.

She believes that investors are not using their money market accounts because people need cash for various reasons.

"Paglia stated that he does not believe there will be a significant wave of investors leaving money market funds and investing in the stock market or ETFs."