So far this year, U.S. small-cap stocks have outperformed their large-cap counterparts on every single trading day. On Thursday, the small-cap-focused Russell 2000 index closed up 0.8%, marking its eighth record closing high of 2026 and extending its streak of outperformance against the broader S&P 500 to a 14th consecutive session. This achievement represents the longest winning streak for small-caps relative to large-caps since May 1996—a period coinciding with the early stages of the dot-com bubble.

The dominant position of small-cap stocks since the start of the year is notable. In a report released Thursday, Goldman Sachs indicated that its forecasts suggest U.S. economic growth will accelerate and exceed market consensus expectations, while inflation remains below consensus, allowing the Federal Reserve to continue easing monetary policy. Goldman Sachs analyst Matthew Kaplan wrote, "We believe the market has not yet fully priced in the potential strength the U.S. economy may exhibit next year, and small-cap stocks typically perform better during cyclical rebounds."

However, Markets Live macro strategist Tatiana Darie offered a note of caution, stating, "Despite signs of stabilization in the labor market and an overall improvement in economic conditions, growth remains fragile. For small-caps to drive the index to new highs and sustain their outperformance against the AI-fueled S&P 500, they now need to prove that this rapid ascent is supported by earnings."

The Russell 2000's strong performance comes at a time when enthusiasm for artificial intelligence is cooling. Growing concerns about unproven corporate cost inflation and profitability are prompting traders to seek growth opportunities in other areas. As technology stocks lag, small-cap stocks are benefiting from this shift. Jonathan Krinsky, Chief Market Technician at BTIG, observed, "There is a clear rotation in market leadership underway. While there will be pullbacks along the way, we want to stay on the side of this new trend, which, in our view, is still in its early stages."