Why Are Small-Cap Stocks Booming? See What the Research Says.

Small-cap stocks are gaining momentum as investors look beyond the large-cap “Magnificent Seven” and the most expensive parts of the tech rally, according to recent research referenced in the article. In 2026 so far, the iShares Russell 2000 ETF (IWM) is up about 18% year to date, outperforming the S&P 500. Over the past year, it delivered total returns of 42.46%, beating both the S&P 500 and the tech-heavy Nasdaq-100. The article cites T. Rowe Price research from February showing small-cap earnings improved 27% from Sept. 19, 2025, to Jan. 27, 2026, with a projected continuation supported by easing tariff uncertainty, a stronger setup for regional banks, and fiscal stimulus tied to U.S. tax changes. Fidelity’s research also highlights comparatively low valuations, noting the Russell 2000 trades at just under a 20 P/E, and that small caps were roughly 4% of total U.S. market capitalization as of March 2026.