Jan. 12 at 8:53 PM
Small-cap stocks have surged early in 2026, with the Russell 2000 up more than 6% this month and outperforming major large-cap indexes. While some of the move may reflect the typical January effect, strategists say the rally could have staying power after years of underperformance versus large caps.
Supportive factors include the prospect of lower interest rates—which benefit small firms with more floating-rate debt—more attractive valuations, and faster expected earnings growth than the S&P 500. Small-cap stocks trade at a wider-than-normal discount to large caps, leaving room for upside if the gap narrows.
Investors are increasingly rotating into overlooked areas such as industrials, healthcare, and value stocks, and potential merger-and-acquisition activity could provide an additional tailwind. With a resilient U.S. economy and improving fundamentals, the small-cap rally may extend beyond January.
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