Riskier Small Caps Seen Outperforming in 2026 on Growth Outlook

The third Federal Reserve rate cut in as many meetings, and the prospect of more easing to come, has driven the Russell 2000 Index to outperform the S&P 500 Index for a fourth straight week, which ties for the longest such stretch in two years. Strategists from firms including Bank of America Corp., JPMorgan Chase & Co., BTIG LLC and Polar Capital America Corp. see the recent small-cap leadership extending into 2026, a forecast hinging on more rate cuts and economic growth as well as diversification out of frothy megacaps. “Small caps are a good place to be generally, and globally, in part because they’ve been overlooked for a long period of time,” said Dan Boston, head of the global small company team at Polar Capital America.