Can the outperformance continue?
The small-cap stock rally we highlighted back in April has continued over the past few months, driven by factors such as robust U.S. economic growth disproportionately benefiting smaller, domestically focused businesses and the AI capital spending boom spreading to smaller tech and energy companies.
One result: Small-cap stocks are beating their larger peers so far this year¹, with the S&P 600 index of small-company stocks up 23.4% year to date, versus 15.7% for the Nasdaq-100 Index, 8.1% for the S&P 500 Index, and -5.4% for the Mag 7 group of stocks (see the chart). The small fry are also having a strong second quarter (up 19.2%). What’s more, small caps are generating that outperformance without relying on the handful of semiconductor stocks that have become Wall Street darlings.
Going forward, small caps’ recent momentum could have staying power. Given that the entire S&P 600 Index is worth roughly $2 trillion (about the same as semiconductor maker Broadcom), even a small rotation into these stocks by investors could have an outsized positive impact on returns. And with the Fed likely to hold rates steady for the time being, smaller companies should continue to benefit from relatively low borrowing costs.
¹ Through 06/26/2026
Authored By Mike Dickson
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