Small-Cap Highlights: Russell 2000 Rises, Forecast from Freedom, AeroVironment's Success

This week, small-cap stocks gave investors reason for optimism: The Russell 2000 posted its best first-half performance in the last 35 years, outperforming U.S. large-cap indices. Freedom Broker expects small-caps to continue outperforming the market. Against this backdrop, AeroVironment demonstrated with a strong earnings report that demand for defense technologies remains high. Highlights from the week of June 29 through July 3 are in the Oninvest digest.

In its new strategic outlook, Freedom Broker forecasts that the S&P SmallCap 600 Index will reach 2,000 points by the end of 2026, implying a growth potential of 10.8%. For the S&P 500, analysts expect growth to 7,900 points, or 5.3%.

According to Freedom Broker, small-cap companies will benefit from a recovery in domestic demand, slowing inflation, and a favorable trajectory for interest rates, as they are traditionally more sensitive to the cost of capital and lending conditions. In its longer-term outlook, Freedom expects small-caps to continue outperforming: over the next 12 months, the S&P SmallCap 600 could gain 19.2%, compared with 8.7% for the S&P 500.

Interparfums, which produces fragrances for Montblanc, Jimmy Choo, Coach, and other well-known brands, may see a new wave of growth in 2027 thanks to the launch of fragrance lines by David Beckham, Longchamp, and Off-White. Despite a slowdown in sales this year, analysts remain optimistic about the company and recommend buying its stock.

In a new analysis, Oninvest explained how a small company without its own manufacturing facilities built a highly profitable business based on licenses from luxury brands, why perfume remains the most accessible segment of the luxury market, and how Interparfums plans to accelerate its growth in the coming years.

The Russell 2000 small-cap index has risen nearly 21% since the start of the year, surpassing 3,000 points and outperforming the S&P 500 (+9.6%) and the Nasdaq Composite (+12%). This is the Russell 2000’s best first-half performance since 1991, according to CNBC. The index closed higher for the fifth consecutive quarter, marking the longest streak of quarterly gains since the market’s recovery from the COVID-19 pandemic, Bloomberg noted.

According to CNBC, this growth is being driven not only by investments in AI, but also by a recovery in corporate valuations and an improvement in their financial performance. However, analysts warn that following the annual rebalancing of the Russell indices—which resulted in 43 companies being added to the Russell 1000—the index’s momentum may slow in the coming weeks.

Shares of drone manufacturer AeroVironment rose nearly 19% during trading on Tuesday, June 30, following a quarterly report that exceeded expectations for revenue and earnings. The company’s order backlog increased by 65% over the past year, driven by strong demand for drones, counter-drone systems, and space technologies. The company also reaffirmed its revenue guidance for fiscal year 2027 at $2.13–2.23 billion.

Despite a more than 20% drop in the stock price since the start of the year, management expects the market to continue growing: the Pentagon’s budget for unmanned systems next year could exceed $75 billion. Analysts also remain optimistic: according to MarketWatch, all 14 experts recommend buying AeroVironment stock, and the average price target of $241.50 is approximately 26.5% higher than the closing price on July 2.