Small-cap stocks are gaining prominence in 2026 after a prolonged period overshadowed by large companies. The Russell 2000 index in the United States has reached record levels, outperforming the S&P 500 with a year-to-date return of 7.5%, while the global benchmark index has produced nearly flat results. Similarly, European indices are following suit, with the MSCI Europe Small Caps rising by 4% and the MDax by over 3%, compared to the Dax German index's 0.7% increase.

Several factors are driving this momentum according to Bank of America. One significant element is the anticipated earnings growth, with the market consensus forecasting an 18% increase in earnings per share (EPS) for US small caps, compared to 16% for larger companies. This optimism reflects a renewed interest from investors, particularly as small-cap stocks are historically seen as riskier but with the potential for greater returns as economic conditions improve.

This shift in focus towards small-cap companies may suggest a broader bullish sentiment in the market, especially as investors look for opportunities in sectors that could benefit from an economic recovery. The ability of these smaller companies to capitalize on growth opportunities during an upturn positions them well to attract more investment, further highlighting the changing dynamics in equity markets as we move deeper into 2026.