The Russell 2000 outperformed the S&P 500 by more than 12 percentage points in the first half - its strongest relative showing since 2001
Small-cap stocks just wrapped up a stellar first half.
Small-capitalization stocks are coming off a historic run. On Tuesday, they clinched their best performance during the first six months of a year since 1991.
This has been welcome news for long-suffering bulls. After a number of false starts in recent years, the Russell 2000 RUT, a widely followed small-cap index, has just tallied what has been - so far, at least - its most durable advance since this AI-powered bull market began.
Small-cap gains even look large compared with large-cap trackers: The Russell 2000 outperformed the S&P 500 SPX by more than 12 percentage points in the first half - its strongest relative showing since 2001, Dow Jones Market Data showed.
Over the past six months, the Russell 2000 benefited from a boom in shares of technology stocks and, in particular, highly-speculative names tied to popular themes like quantum computing, nuclear energy, artificial intelligence and biotechnology. On Friday, 43 Russell 2000 stocks "graduated" from the index during the semi-annual rebalancing of the entire family of Russell U.S. indexes.
This has swept out many of the index's top-performing names. The 25 top-performing Russell 2000 members during the year through last week's rebalancing had all risen by at least 250%, according to Bespoke Investment Group. All of those names have since departed for the large-cap Russell 1000.
Stock Company Sector Mkt Cap ($, Bln) Price YoY % Chg BE Bloom Energy Industrials 87.1 300.9 1158 CRDO Credo Technology Technology 50 263.4 184.5 ECHO EchoStar Comm. services 28.4 97 250.1 STRL Sterling Infra Industrials 27 869.7 276.9 TTMI TTM Technologies Technology 21.7 206.9 406.9 FN Fabrinet Technology 20.4 564.7 91.6 IONQ IonQ Technology 19.1 50.6 17.8 GH Guardant Health Healthcare 18.8 142.2 173.3 SITM SiTime Technology 18.4 686.6 222.2 NXT Nextpower Industrials 17 111.1 104.4 CDE Coeur Mining Materials 16.6 16 81 DOCN DigitalOcean Technology 15.3 145.2 408.5 IESC IES Holdings Industrials 15.2 760.5 156.7 VICR Vicor Industrials 15.2 331.6 631.1 MOD Modine Manuf Industrials 15.1 282.3 186.6 SMTC Semtech Technology 15.1 161 256.6 DY Dycom Industries Industrials 14.6 488.4 99.8 AEIS Advanced Energy Technology 14.1 369.2 178.6 BBIO Bridgebio Pharma Healthcare 13.7 69.7 61.5 SANM Sanmina Technology 13.6 252.4 158 RMBS Rambus Technology 13.5 122.5 91.3 BTSG BrightSpring Health Healthcare 13.5 69.3 193.7 MOG.A Moog Industrials 13.3 417.8 130.9 WULF Terawulf Technology 13 26 492.9 HUT Hut 8 Technology 12.9 114.5 515.3 Average 261.1 Source: Bespoke Investment Group, Data accurate as of June 25.
Indeed, a stretch of lackluster performance following a rebalancing would be nothing new for the Russell 2000. Julian Emanuel, chief equity and quantitative strategist at Evercore, has crunched the numbers.
"There is a pronounced tendency for small caps to give back a portion of the outperformance that they had garnered in May and June in the runup to the Russell rebalance," Emanuel told MarketWatch on Tuesday.
Returns for small caps during the month of July are rarely spectacular; the Russell 2000 has averaged a monthly gain of 0.6%, the eighth-best average return for any month, according to Dow Jones Market Data.
But there are reasons besides the calendar for investors to approach this corner of the market with caution. Whereas small caps were once seen as cheap, the strong rally this year has pushed the forward price-to-earnings ratio of the Russell 2000 above that even of the S&P 500.
The ratio stood at 26.4 as of late last week, according to Dow Jones Market Data. The S&P 500's forward price-to-earnings, meanwhile, is closer to 20, according to FactSet data.
The possibility of interest-rate hikes later this year is another potential headwind. Smaller companies tend to carry more floating-rate debt, which is more sensitive to rising interest rates. Also, roughly 40% of the companies in the Russell 2000 are unprofitable, making them even more vulnerable to refinancing risk.
To be sure, some small-cap investors remain optimistic. Like their larger peers, smaller companies have also enjoyed a big bump in Wall Street earnings estimates so far in 2026. And while higher interest rates certainly could bite, they are also indicative of an economy that is on firmer footing.
"To me, higher rates are reflective of the economy doing OK, if not better," said Francis Gannon, co-chief investment officer at Royce Investment Partners, during an interview with MarketWatch.
"I think the earnings story of small caps is outweighing some of the fears of higher rates."
The Russell 2000 gained 13.94 points, or 0.5%, on Tuesday to finish at 3,024.36, a fourth consecutive closing high.
This was the first time the index had tallied four record finishes on four consecutive trading days since February 2021, according to Dow Jones Market Data.
Michael DeStefano contributed
-Joseph Adinolfi -Isabel Wang
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June 30, 2026 16:57 ET (20:57 GMT)
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