MarketMoodz
Small-Cap Momentum: January Gains Could Extend into February
Small-cap stocks are off to a hot start in 2026 as the Russell 2000 rose 9.5% year-to-date through Jan. 22. The move is aided by seasonality and a shift away from megacap tech, with investors pricing in possible Federal Reserve rate cuts later in the year.
Key Takeaways
- Russell 2000 up 9.5% YTD through Jan. 22, 2026
- In January, Russell 2000 outperformed the S&P 500, which rose about 1%
- Seasonality supports small caps after Q4 tax-loss selling, per Jeffrey Hirsch
- February could bring further gains for small caps in midterm years (roughly 1.3% on average)
- Small-cap forward P/E sits about 30% below large caps, offering valuation cushion
People Involved
- Jeffrey HirschStock Trader’s Almanac Editor/Publisher
- Daniel LysikMiller Value Partners Portfolio Manager
Entities Involved
- Russell 2000Small-cap index (benchmark)
- Stock Trader’s AlmanacPublisher and seasonal data source
- Miller Value PartnersInvestment firm cited for earnings commentary
MarketMoodz Analysis
Momentum in U.S. small caps is accelerating into the back half of January, with the Russell 2000 up 9.5% year-to-date through Jan. 22. If the macro backdrop improves—rate cuts priced in for later this year and rotation away from megacap tech—this could sustain further upside, though the rally hinges on liquidity and the pace of policy normalization.
Fundamentals are turning modestly more favorable for smaller companies. Miller Value Partners’ Daniel Lysik notes that small-cap earnings growth slightly exceeded large-cap earnings in the last quarter—the first such beat in 13 quarters—supporting valuation appeal as the forward earnings gap versus large caps remains wide. Still, data sources like Stock Trader’s Almanac underline seasonality patterns rather than guaranteed outcomes, so investors should guard against overreliance on historical averages.
Historical patterns for midterm-year Februaries add another layer of context: the Russell 2000 has logged stronger Februarys, with about 1.3% average gains versus roughly 0.3% for the S&P 500, according to Almanac data. If the current momentum persists, February could test those norms, but rate regime shifts, fund flows, and valuation gaps will drive the ultimate trajectory.
Source: Original Article
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