Thanks to a strong start to the year, small caps have been outperforming large caps in 2026.
May has marked a turnaround, with tech and growth once again leading, but small caps continue to present a compelling investment case
Year to date, the Vanguard Russell 2000 ETF (NASDAQ: VTWO) has returned 16%, far outpacing the 10% return of the Vanguard S&P 500 ETF. But the volatility in stocks this year and the significant leadership rotations over the past six months indicate a rapidly evolving economic environment. For the Vanguard Russell 2000 ETF to continue leading, its operating environment will need to keep improving.
Why small-cap stocks are finally having a moment Small caps have trailed large caps for several years, primarily on the heels of corporate earnings. Large caps have collectively been able to deliver solid earnings growth since 2023, on the heels of the Magnificent Seven boom. Small caps haven’t had the same environment.