Freedom: The small-cap index has twice as much growth potential by year-end as the S&P 500
Freedom's forecast for the next 12 months suggests that small-cap companies will grow faster than the market / Photo: Facebook / NYSE
The S&P Small Cap 600 Index is expected to rise by 10.8% by the end of 2026 and outperform the S&P 500 Index, which tracks the largest issuers and is projected to rise by 5.3% — according to a forecast by Freedom Broker. Analysts believe that the growth of the S&P SmallCap 600 will be supported by strong domestic demand in the U.S., slowing inflation, expectations of monetary policy easing, and rising corporate earnings.
Details
According to a strategic review by Freedom Broker (available to Oninvest), the S&P SmallCap 600 Index will reach 2,000 points by the end of 2026. This implies growth potential of 10.8% from the closing level on June 30, when the small-cap index stood at 1,804.34 points.
At the same time, analysts predict that the S&P 500 broad-market index will rise to 7,900 points, representing a growth potential of 5.3%.
According to the forecast for the next 12 months, the outperformance of small-cap companies is expected to accelerate. In this scenario, the S&P SmallCap 600 will rise 19.2% to 2,150 points, while the S&P 500 will gain 8.7% to reach 8,150 points.
What's Behind the Growth
The returns on small-cap stocks, which can be twice as high as those of large companies, will depend on several factors at once. One of the key factors is the recovery of domestic demand. Freedom identifies small companies as among the main beneficiaries of a strong U.S. economy.
“Unlike the large-cap segment, where growth is largely driven by the AI cycle and a high concentration of profits among technology leaders, small-cap companies remain more sensitive to domestic demand,” analysts note.
The small-cap segment may also receive support amid the resumption of the disinflationary trend, which was driven by the correction in oil prices. At the same time, current interest rate expectations reflect the regulator’s cautious stance and the inertia of market expectations rather than a sustained deterioration in the macroeconomic situation, according to Freedom analysts.
In the baseline scenario, with a 70% probability, Freedom analysts expect the impact of oil prices to ease and believe that short-term inflation expectations will stabilize in the 2.1–2.3% range, The Fed will keep rates unchanged in 2026 but will be ready to resume its easing cycle in 2027. Small companies are traditionally sensitive to the cost of capital and credit conditions, so this scenario is favorable for them.
According to Freedom’s forecast, earnings per share for companies in the S&P SmallCap 600 Index will grow by 13.9–22.5% in 2026, depending on how market conditions evolve. Analysts do not expect the index to return to an earnings recession in any of the base-case scenarios and believe that market multiples will remain at levels that do not indicate significant market overheating.
