Freedom Broker sees 17% upside for S&P SmallCap 600 by end-2026, outpacing S&P 500

The S&P SmallCap 600 index is projected to rise 17.3% by the end of 2026, outpacing the S&P 500, according to Freedom Broker. Growth catalysts include stabilization in the labor market, lower interest rates, and a limited impact of Trump's tariffs on inflation.

The S&P SmallCap 600 is expected to reach 1,700 points by the end of 2026, according to a Freedom Broker strategic review seen by Oninvest. Yesterday, September 30, the index closed at 1,449.3 points, implying upside of 17.3%.

By comparison, the broad-market S&P 500 is forecast to reach 7,400 points in the same period, for a gain of 10.6%, Freedom Broker analysts said.

For the remainder of 2025, the S&P SmallCap 600 is expected to advance 6.3%.

The labor market is stabilizing. The share of companies reporting vacancies has fallen to its lowest level since July 2020, Freedom Broker noted. This is a positive development for small businesses, as a more mobile labor force makes hiring easier, analysts said.

The second positive factor for smaller companies is lower interest rates. In September, the Fed cut rates by 25 basis points, its first reduction in 2025. As a result, the average rate on short-term loans fell 0.6 percentage points month over month to 8.1%, the lowest since May 2023, Freedom Broker calculated. About 45% of small-company borrowings are short-term or floating-rate, BofA previously wrote.  

The third driver of growth is easing inflationary pressure from tariffs. Six months have passed since Trump announced his tariff rollout in early April. The tariff effect typically materializes within 2-3 months, Freedom Broker analysts concluded, meaning the impact is now largely absorbed.

All of this has led Wall Street to revise its expectations for small caps, the report said. After a long period when consensus forecasts suggested a decline in EPS, analysts now expect EPS growth for the S&P SmallCap 600 of 10.3% year over year in the third quarter, 24.9% in the fourth quarter, and 26.0% in the first quarter of 2026.

The AI translation of this story was reviewed by a human editor.