How US Small-Caps Can Navigate Sustained Leadership

Small-cap stocks can sustain their market leadership because earnings, long-term valuation gaps and historical cycle patterns matter more than short-term interest-rate moves.

• From 8 April 2025 to 30 June 2026, the Russell Microcap gained 108.4% and the Russell 2000 74.5%, versus 52.8% for the Russell 1000, 49.0% for the Russell Top 50 and 73.1% for the Nasdaq.
• In the first half of 2026, the Russell Microcap rose 27.5% and the Russell 2000 22.6%, with technology, semiconductors, biotechnology, industrials and banks among the main contributors; all 11 Russell 2000 sectors finished the period higher.
• Small-cap value gained 23.0% year to date to 30 June 2026, narrowly exceeding small-cap growth at 22.2%, while value also led over the one-, three- and five-year periods.
• Analysis of eight prior leadership cycles since the end of 1931 found four cycles led by each asset class; the shortest lasted five years and the three longest lasted between 14 and 16 years.
• Small-cap stocks still represented less than their 7.6% long-term average weight in the Russell 3000, and the Russell 2000 and Russell Microcap remained below their long-term relative valuation averages against the Russell 1000 on median LTM EV/EBIT at 30 June 2026.

Takeaway: Investors should not assume that higher rates will automatically end small-cap leadership; the article expects the cycle to continue for at least the next few years, while warning that geopolitical shocks, weaker growth and double-digit corrections could still produce significant volatility.