Important points
- The Russell 2000 and S&P 600 saw gains of over 4% in the initial days of 2026.
- A BofA Global Research report identified 30 stocks with average 12-month price targets suggesting nearly a 30% upside.
It seems that smaller stocks might be gearing up to lead the market.
Analysts from Wall Street believe that small-cap stocks—generally companies valued between $250 million and $2 billion—will likely outperform large-cap stocks this year. Their strong showing at the start of 2026 backs this prediction, with both the S&P 600 and Russell 2000 indices rising more than 4%, outpacing larger market sectors.
This isn’t entirely new. Market strategists have often pointed out how smaller firms frequently outshine their larger counterparts, only to end up faltering later. But this year, experts feel the timing could finally be right for small-cap stocks to shine. Earnings are climbing, monetary policies are becoming friendlier, and some tariffs may be lifted.
Why this matters to you
Large-cap stocks have delivered significant returns lately, and some analysts suggest that this momentum could extend to other market segments.
“If earnings surpass expectations, small-cap stocks could take the lead,” noted Jill Carey Hall, who oversees U.S. small- and mid-cap stocks at Bank of America, just last month.
In a subsequent report released recently, he highlighted a list of 30 mid-cap stocks with projected 12-month price targets showing an average upside of almost 30%.
Hall mentioned that around 90% of these stocks have had their consensus earnings forecasts raised in the last three months, with a median growth prediction of 23% for the coming year.
Additionally, the bank’s economists anticipate three interest rate cuts by the year’s end, which typically benefits smaller companies. Since they tend to carry more debt than their larger peers, they’ll gain from reduced interest expenses, leading to higher profits.
Among the bank’s recommended picks in this category are Alaska Airlines Group (ALK), shoemaker Birkenstock (BIRK), education technology firm Duolingo (DUOL), cosmetics brand Elf Beauty (ELF), beverage retailer Vita Coco (COCO), and online home goods store Wayfair (W).
