Small-cap stocks post strongest first half since 1991, CNBC reports
State Street and Avantis executives told CNBC that earnings revisions and sector breadth have supported this year’s small-cap advance.
By Marcus V. Thorne · Markets Editor
· 3 min read
Small-cap shares have staged one of their strongest starts to a year in more than three decades, with the Russell 2000 Index up close to 20% in 2026, according to CNBC data. The advance has lifted major small-cap exchange-traded funds and prompted asset managers on CNBC’s “ETF Edge” to argue that the move reflects improving fundamentals rather than only speculative positioning.
Matt Bartolini, global head of research strategists at State Street Investment Management, told CNBC that the rally is “not a junk rally.” He pointed to earnings estimate revisions as one reason: more Wall Street firms are raising small-cap profit expectations than cutting them, including for the third and fourth quarters, he said.
Bartolini said he expects the current quarter to show more than 20% growth in earnings per share for small-cap companies. Earnings per share measures the amount of a company’s profit attributable to each outstanding share, and rising estimates can signal that analysts see stronger operating results ahead.
Broad participation across sectors
State Street’s view rests partly on the breadth of the move. Bartolini told CNBC that all 11 small-cap sectors in the Global Industry Classification Standard are outperforming their large-cap counterparts, a pattern he said has not occurred in more than 30 years.
That breadth matters because a rally led by many sectors can look different from a narrow rebound in a small group of distressed or heavily shorted shares. Bartolini said smaller companies with lower short interest are beating the most heavily shorted small-cap stocks. If the advance were mainly a short squeeze, he said, the opposite would be expected.
A short squeeze occurs when investors who have bet against a stock buy shares to close positions after prices rise, adding demand and potentially accelerating the move. Bartolini’s argument is that current performance patterns point more to earnings and price momentum than to forced covering by short sellers.
State Street’s SPDR Portfolio S&P 600 Small Cap ETF, which tracks the S&P SmallCap 600 Index, and its SPDR S&P 600 Small Cap Growth ETF, which tracks the S&P SmallCap 600 Growth Index, are each up more than 20% this year, according to CNBC data. At the same point last year, CNBC said SPSM was down almost 2%, while SLYG had risen 0.86%.
The Russell 2000, a widely followed benchmark for smaller U.S. companies and the index underlying the iShares Russell 2000 ETF, has also gained close to 20% this year, CNBC reported. That marks its best first half since 1991.
Flows still favor larger companies
Phil McInnis, chief investment strategist at Avantis Investors, told CNBC that the small-cap performance should encourage investors to look beyond large-cap exposure. He said investors who buy the S&P 500 get meaningful exposure to U.S. equities, but not to the full stock market.
McInnis said mutual fund and ETF flow data still show more attention going to large-cap strategies than small-cap funds. Avantis manages multiple small-cap funds, along with other equity and bond investments.
McInnis also cited non-U.S. developed markets, emerging markets and mid-cap stocks as areas where investors may consider exposure, according to CNBC. He said emerging markets had performed “tremendously well” over the past year. The iShares Core MSCI Emerging Markets ETF is up more than 18% this year, CNBC data show.
This story draws on original reporting from CNBC.
