Another way of evaluating relative returns (and considering the historical context in the process) is calculating a rolling 1-year return spread. Let’s take the 1-year return for small caps and subtract the 1-year return for large caps, with the results plotted daily since the mid-1990s:

Using the chart above as a guide, the current small-cap rally has been running strong for more than a year. Although momentum has faltered a bit lately, the small-cap premium is still at a comparatively elevated level at around +8 percentage points. Yes, it’s been higher at times, including a brief, fleeting period in 2000 when the small-cap edge was closing in on an extraordinary spread of +40 percentage points. By that standard, the current premium looks moderate.

The question is whether it’s wise to hold out for even greater gains vs. rebalancing now and taking some profits? Minds will differ, as always, but the track record of reaching for the stars often comes to tears in the money game. That doesn’t mean that small caps won’t continue to dispense outsized returns over large caps in the year ahead. Perhaps, then, it’s wise to rebalance moderately. All or nothing investment decisions can lead to stellar results, but if you’re wrong you’ll pay a hefty price.

Decisions, decisions, although it’s always a good idea to start with first principles before going off the deep end. If you’re inclined to see investing as a risk-management process rather than a return-chasing endeavor, the numbers usually tell you most of what you need to know and when you need to act.

Meantime, it’s hard not to be impressed with the latest numbers. Industrial production’s 1.1% surge for November is the best rate of monthly growth in a year. The sight of the manufacturing slice of activity inching higher in November only strengthens the case for arguing that the expansion in the industrial sector is widespread.

More importantly, the year-over-year numbers show that industrial production’s pace has rebounded in recent months. For the first time since mid-2012, the Fed’s industrial production index has posted annual rates of growth above 3% for three months running. The deceleration that afflicted this indicator in the first half of this year (the low point was this past July’s dip to a mere 1.5% gain over the year-earlier month) has since given way to a substantially stronger set of comparisons.

We also learned today that the initial estimate of the US Manufacturing PMI for December continues to signal a healthy rate of growth through the end of 2013. “The flash PMI remained surprisingly high in December, suggesting strong growth momentum in the goods producing sector,” noted Markit’s chief economist in today’s press release (pdf). That’s a clue for thinking that the encouraging numbers in today’s November industrial production data will carry over into this month when the Fed publishes its next report for this indicator.

It may be a shock in some circles to discover that industrial activity has been growing by 3%-plus a year in recent months, but the broader implications for the business cycle aren’t terribly surprising. Although some pundits are prone to anecdotal evidence and outlier numbers in the regular updates on economic data, a broad review of the big-picture trend has remained consistently upbeat, as the monthly reviews of the Economic Trend & Momentum indices remind (here’s last month’s report, for instance).

Although the strong rise in industrial production for November is only one number, it’s one of several data points that suggest that business cycle risk remains low for the US. That’s been the message all along, albeit with some rocky periods at times. But an objective, broad-minded search for compelling clues that a new recession is near have turned up few persuasive warning signs in recent history. Today’s news on industrial production certainly doesn’t change this record.