By David Brown, Chief Market Strategist

The bulls remained very much in charge last month. Indeed, October was the best of three successive months of solid performance, with every index up more than 3 percentage points.

Of the major indexes, the Nasdaq led the way with a gain of 4.8% but the Dow and the S&P 500 were no slouches either. Each gained more than 3% during the month. But very surprising, as you will see from our comments below, the small-cap Russell 2000 Index was up more than 5.5% just in October while the new Russell Microcap Index was up almost 6%. In short, a good time was had by all during this raucous Octoberfest!

Lest we enjoy the party too much, we find ourselves in somewhat of a dilemma when trying to call the best place to be over the next few months. Last month we pointed out that after being dominated by small-caps, large-caps appeared finally to be the indexes of choice based on their very strong rallies in August and September. Not so this month! The small-cap indexes were up nearly 6% in October -- 200-plus basis points more than the large-cap or mid-cap indexes.

With that performance, small-caps handily led the past quarter and the past 12 months. While large-caps outperformed the smaller caps over the past six months, it was by a small margin which now appears anomalous, so perhaps we were a bit premature in reading a trend in the strong large-cap performance in August and September.

The value vs. growth issue seems equally unsettled. Value has outperformed growth over the past 6 and 12 months, but growth still handily outperformed value over the past 3 months and did so dramatically in October.

Of course, it is always tough to beat a market that gains on the order of 10% in a single quarter. But a careful analysis of the companies that did do better than the market shows a preponderance of quality growth companies that consistently beat their estimates over the past year with strong earning growth -- but they did so with strong cash flow, strong fundamentals and healthy accounting.

This market continues to eschew companies with aggressive accounting practices, especially with regard to company stock options. Finally, the market has, most of all, rewarded companies that are favorably priced with regard to their growth.

We might bask in the knowledge that we could have made money virtually anywhere in the market in October, but as we look ahead there is no clear trend with regard to large-caps vs. small-caps or value vs. growth. Considering just the past 3 months, we would have to opt for small-caps over large and growth over value, but that conclusion ignores the uncertainties in interest rates, oil prices, and political atmosphere which, in our opinion, have caused the occasional "flights to quality." Therefore, ignore valuation at your own peril.

We'll review the market behavior again the second week in December.