We’ve been marveling at the performance of U.S. large-cap stocks since that early April low. We’ve also been tracking whether small-caps are finally going to keep up pace with their larger counterparts. But one of the things emerging in midyear market outlooks is the opportunity in midcaps.
Late last year, as we digested the presidential election, I remember a research note from State Street Investment Management calling U.S. midcaps “the goldilocks” of the equity market. That note, written by Krzysztof Janiga, senior equity ETF strategist at State Street, argued that in a “Trump world,” midcap stocks have a lot to offer relative to large- as well as small-caps.
“U.S. mid caps may offer more direct access to strengths of the U.S. economy, trade at more affordable P/E multiples, and appear likely to benefit more from the new administration’s policies,” he said. “And mid cap companies tend to be less volatile than small cap exposures, providing the right environment for further exposure.”
“Mid Cap equities often sit in the sweet pot between large and small caps,” he continued in the note. “They allow investor access to U.S. exceptionalism, trade at relatively undemanding valuation multiples, and they retain the high growth potential of small caps but include more established businesses with easier access to capital.”
Since that note came out, a lot has happened in the “Trump world” with tariffs, geopolitical heat, and concerns about economic growth — making for a challenging background for risk assets. Yet, when we look at U.S. stocks across the market capitalization spectrum, the second quarter ushered in a rally in equities, especially post- Liberation Day. High beta, high momentum large-cap stocks led the gains. But midcaps have been delivering too.
In its Midyear Outlook, ProShares’ Director of Investment Strategy Kieran Kirwan argues that midcaps are offering “a solid combination of expected earnings growth and generally more favorable valuations versus the S&P 500, especially in high-quality names.” What’s more, midcaps tend to be less leveraged than their small-cap peers.
If we look at the valuations as measured by the SPDR S&P Midcap 400 ETF (MDY ), a portfolio of midcaps is trading with a price-to-book (P/B) ratio of 2.4, and a forward P/E of 17.4 By comparison, large-caps, as measured by the SPDR S&P 500 ETF (SPY ), are trading with a P/B of 4.9 and a forward P/E of 24.
The relative valuation appeal is evident, especially when we consider the earnings outlook going forward. Consider the graph below plotting earnings projections, courtesy of ProShares. Midcaps are expected to deliver more on that front than their large-cap counterparts in 2026.
Earnings Estimates Have Been Revised Downward but Remain Healthy
Domestic-Focused Revenues
One interesting argument for midcaps in the current market is tied to tariffs. We’ve all been navigating tariff uncertainty and trying to make sense of how tariffs — when clarified — will impact various companies.
In the midcap tier of market capitalization, companies are not only trading at compelling multiples relative to large-caps, they are also more insulated to tariffs and trade issues because they have a higher percentage of revenues tied to domestic markets.
Roughly 77% of revenues from S&P 400 Midcap companies are generated in the U.S, according to ProShares data. That compares to 59% of S&P 500 revenues. Small-cap stocks are often touted for their domestic focus, but midcaps are also sourcing most of their revenues domestically.
“Midcaps are a fantastic way to shield portfolios from much of the concerns about tariffs,” Kirwan said.
ETF Considerations
Like large-caps this year, midcap ETFs have delivered varying results depending on the strategy. Growth has done better than value in this category. Dividend quality names have done well.
For example, consider the S&P 400 as a category benchmark. MDY is up just over 1% year-to-date. But since the April 8 low, the fund has rallied more than 21%.
To put that post-Liberation-Day performance in context, the large-cap SPY is up 24% in that time frame. And the small-cap SPDR S&P 600 ETF (SPSM ) is up 19%. Midcaps are, well, in middle.
Looking at midcap ETFs outside of the S&P index framework, the Vanguard Mid-Cap ETF (VO ) stands out among the best-performing this year.
VO, which tracks a CRSP index holding only 299 names, has delivered some 7% in gains in 2025, up about 21% since April. Its growth-focused counterpart, the Vanguard Mid-Cap Growth ETF (VOT ) has delivered an impressive 13% so far this year. The fund is up 30% since early April alone.
A momentum play like the Invesco S&P MidCap Momentum ETF (XMMO ), which owns only 79 stocks, offering a higher beta concentrated play, is up 27% since April 8, and about 6% year-to-date.
If you look among dividend payers, the ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL ) is up 14% since early April. The fund invests in the S&P MidCap 400 Dividend Aristocrats, which are considered high-quality names paying and growing dividends for 15-plus consecutive years.
The active Avantis U.S. Mid Cap Value ETF (AVMV ), which considers high profitability and relative valuations in its selection, is up 21% since April.
These are just some examples of the results U.S. midcap ETFs have delivered this year. If you are looking at this opportunity set, there are more than 70 U.S. midcap ETFs in the market today slicing and dicing the category along style, factor, and strategy types.
“There are some good fundamental supports for this market rally and valuations,” ProShares’ Global Investment Strategist Simeon Hyman said of the overall market in a midyear outlook. “Midcaps are a sweet spot.”
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