That’s true. Good things come in small packages. See Russell 2000. The small-cap benchmark index is up a whopping 9.5% since the beginning of the year, hitting an all-time high on Thursday. This is significantly higher than the S&P 500 index, which rose just 1% in January. Macroeconomic factors for the outperformance include expectations that the Federal Reserve will cut interest rates this year and investors cutting back on exposure to big tech stocks. Seasonality also influences this movement. Jeffrey Hirsch, editor of the Stock Trader’s Almanac, said small-cap stocks are benefiting from the “January effect,” meaning investors are dumping small-cap stocks to start the year, especially those that suffered tax losses on sales in the fourth quarter. He added that Russell could continue to do well until next month. .RUT .SPX YTD Mountain Russell 2000 vs. S&P 500 in 2026 “The Russell 2000 index well outperformed other major indexes in January of this year and appears to be benefiting from a strong ‘January effect’…If this momentum continues, the Russell 2000 index could continue to show strength in February of this year,” he said in an email Thursday. The Russell 2000 index rises an average of 1% in February, while the S&P 500 index is typically flat throughout the month, according to Almanac data. Small-cap stocks historically do even better in midterm election years like 2026. Stock prices rise by an average of 1.3% in February of each year, when interim results are held, while the S&P 500 index only rises by 0.3%. Daniel Lysik, portfolio manager at Miller Value Partners, said in a post earlier this week that the fundamentals of the small-cap complex are also improving. “Over the past quarter, small-cap stocks showed positive signs for the first time in 13 quarters, with earnings growth slightly outpacing that of large companies,” he wrote. “Furthermore, when you look at relative valuations, small-cap stocks are trading at a 30% discount to their one-year forward price-to-earnings ratios relative to large-cap stocks.” In short, the focus here is on small-cap stocks.
