It’s true. Good things come in small packages. Just take a look at the Russell 2000 . The benchmark index for small-cap stocks is up a whopping 9.5% to start the year, hitting an all-time on Thursday. That puts it far ahead of the S & P 500 for January, which is up just 1%. Macroeconomic catalysts for the outperformance include expectations of Federal Reserve rate cuts later this year, as well as investors paring exposure to megacap tech stocks. Seasonality is also playing a part in the move. Jeffrey Hirsch, editor of the Stock Trader’s Almanac, noted small caps are benefiting from the “January Effect,” meaning investors are scooping up smaller names to start the year, especially those that suffered from tax loss selling in the fourth quarter. He added that the Russell could stay strong through next month. .RUT .SPX YTD mountain Russell 2000 vs S & P 500 in 2026 “[The] Russell 2000 has had a banner January this year handily outpacing the other major indexes and appears to be benefiting from a strong ‘January Effect’ … Should this momentum persist, Russell 2000 could continue to exhibit strength this February,” he said in an email Thursday. The Russell 2000 averages a 1% gain in February, while the S & P 500 is usually flat for the month, Almanac data shows. In midterm election years, such as 2026, small caps historically do even better. They average a 1.3% advance in February in years when midterms are held, while the S & P 500 gains just 0.3%. Fundamentals for the small-cap complex are improving as well, Miller Value Partners portfolio manager Daniel Lysik said in a post earlier this week . “During the past quarter, small caps showed some encouraging signs as their earnings growth slightly exceeded that of larger companies, the first time in thirteen quarters,” he wrote. “In addition, looking at relative valuation, small caps forward 1-year price to earnings multiples are at a 30% discount to large caps.” Bottom line, keep an eye on small-cap stocks here.
