Small-Cap Stocks Outperform S&P 500 in 2026 Surge

Small-cap stocks have seen a significant surge in 2026, with the Russell 2000 index rising 20% year-to-date and 35% over the past 12 months. This growth has allowed small-cap equities to outperform major indices, including the S&P 500 and the Nasdaq.

The rally is fueled by a rotation away from overvalued large-cap stocks and a robust mergers and acquisitions market. Additionally, the artificial intelligence supply chain has expanded to include smaller semiconductor firms such as Aehr Test Systems, MaxLinear, Navitas, and Wolfspeed. Wall Street analysts project small-cap earnings growth between 38% and 48% for 2026, which is roughly double the expected growth rate for the S&P 500.

Despite this momentum, the Federal Reserve System has signaled that rising inflation could trigger a rate hike this year, potentially slowing the rally. However, the central bank maintains that interest rates are expected to trend lower in the long term.