The iShares Russell 2000 ETF has surged 18% year-to-date, nearly doubling the S&P 500’s 10.7% gain, though momentum has waned amid renewed AI demand.
The iShares Russell 2000 ETF (IWM) has climbed 18% in 2026, outpacing the S&P 500’s 10.7% return. The rally followed a Supreme Court ruling in February that struck down 2025 tariffs, easing pressure on small-cap firms reliant on debt and supply chains.
Early-year optimism for Federal Reserve rate cuts also fueled gains, as lower rates reduce debt servicing costs for smaller companies. However, the resurgence of the AI trade in April has shifted investor focus away from small caps, raising questions about sustained outperformance.
Investors now weigh strong economic growth and earnings potential against higher inflation, geopolitical uncertainty, and elevated interest rates. The balance of these factors will likely determine whether small caps remain attractive.