'At the gates of the best stockpicking era': Small caps seen as outperforming in 2026
Small-cap stocks could outperform both Big Tech shares and the broader S&P 500 index in 2026, according to Wall Street analysts cited by Bloomberg. Polar Capital America says small caps are an attractive place to invest after years of being overlooked, while JPMorgan argues markets are approaching what it calls "the best stock-picking era we have seen in our lifetime."
Details
Analysts expect small caps to outperform their larger peers in 2026. Since the start of the year, the S&P 500 has risen about 16.0%, outpacing the Russell 2000, the main benchmark for small-cap stocks, which has gained roughly 14.3% over the same period. Over the past six months, however, the trend has reversed: the Russell 2000 has climbed 19.22%, compared with a 12.94% increase for the S&P 500.
Analysts say small caps could take the lead next year if interest rates continue to fall, economic growth remains solid, and investors rotate out of overvalued megacap stocks and diversify their portfolios, Bloomberg reports.
Different analysts' rationale
Eduardo Lecubarri, global head of small- and mid-cap equity strategy at JPMorgan, is quoted as saying he is “convinced” that 2026 is the year to be overweight small- and mid-cap stocks versus larger names in developed markets and the U.S. in particular. “We are at the gates of the best stockpicking era we have seen in our lifetime,” Lecubarri wrote in a note.
Dan Boston, head of the global small company team at Polar Capital America, says that “small caps are a good place to be generally, and globally, in part because they’ve been overlooked for a long period of time... What we see going forward is small caps doing well vis-a-vis large caps.”
Jonathan Krinsky, managing director and chief market technician at BTIG, believes small caps outperforming the Magnificent 7 will be a "theme to watch" in 2026, especially as investors are expected to take some profit in Big Tech stocks given concerns about high valuations. In addition, he expects a boost to the small-cap segment from the prospect of a new, more dovish, Fed chair in 2026, under pressure from Trump to lower interest rates.
Jill Carey Hall, equity strategist at BofA, points out two other factors that should be supportive of small caps to outperform next year: a “long-awaited profits rebound" and a combination of rate cuts, potentially lower tariffs, and shifting investor flows into the smaller names. She forecasts earnings growth of 17% for small caps versus 14% for large caps. In addition, Hall outlined risks, flagging "no manufacturing recovery." The Russell 2000, with its sensitivity to economic swings and manufacturing activity, is currently trading as if the ISM manufacturing data is better than it currently is, she points out.
