Small caps have big heart

Step aside Mag 7, the little guys are taking over the market.

While shares of the biggest stocks on the market have failed to impress in 2026, their smaller peers have had a banner year: Small-cap stocks just wrapped up the best first half of a year since 1991. The Russell 2000 has rocketed to a 19.16% gain this year, lapping the S&P 500’s 10.66% climb.

Whereas once investors focused their money on a handful of mega-cap hyperscalers, their search for stronger returns has taken them further afield. That’s brought new attention (and money) to smaller companies in areas such as quantum computing, nuclear energy, and of course, AI. It’s been particularly lucrative for semiconductor and semiconductor equipment companies, which accounted for five of the 10 best-performing stocks on the Russell 2000 through the end of June.

Small steps forward

While everyone loves an underdog, the good times for small-cap stocks may not last forever.

The Russell 2000, at least, might not be able to keep up the pace. Every June the index is rebalanced, with the stocks that have outgrown their small-cap status pushed over to large-cap focused Russell 1000. This year, 43 stocks made the leap from 2000 to 1000, and considering those were the best-performing stocks of the bunch, the Russell 2000 will likely lose some steam in the second half of the year.

But the biggest problem is interest rates: Given higher inflation in the face of higher oil prices, most of Wall Street is pretty sure the Fed will raise interest rates at least once, and maybe even three times, this year. Higher interest rates hurt smaller companies in particular since they tend to rely more heavily on borrowing than their larger competitors.

Still, for now at least, it’s nice to see the little guys get a win.—MR