Over the long term, US small caps tend to underperform large caps slightly. Between 1997 and 2026, the Russell 2000 posted an average annual return of 7.2%, which is 0.8% less than the S&P 500. However, in more recent times small caps have suffered significantly compared with their larger counterparts, mainly due to the boom in the technology sector. Indeed, the S&P 500 has outperformed the small-cap index by 50% over the last five years.

However, the Russell 2000 is staging a modest comeback: it has outperformed the benchmark US index by nearly 10% since the beginning of 2026.


Performance of Russell 2000 and S&P 500 from 01/01/2026 to 04/28/2026

Why now?

As the "Magnificent 7" hover near record highs, investors are shifting their horizons. Tech leader valuations appear increasingly stretched, bringing small caps back into focus as they are deemed more affordable.

The average 2025 P/E multiple for the Russell 2000 stands at 19.98x amongst index components, compared to 28.95x for the S&P 500 and 38.03x for the Nasdaq 100 (BlackRock data).

Equal-weighted performance by industry for the Russell 2000 over the last 3 months


Over the last three months, the healthcare and consumer sectors have weighed on the S&P 500, while they have supported the Russell. Conversely, technology and energy have bolstered both indices, with a marked outperformance from small-cap tech. Ultimately, the small-cap index has delivered a return twice as high as that of the S&P 500.

A Reality Check

While this outperformance offers a window of opportunity, it must not mask structural risks. A large proportion of Russell 2000 companies exhibit high financial leverage and are exposed to refinancing risk. Unlike S&P 500 leaders, which are often financed with long-term fixed-rate debt, a significant number of small caps rely on floating-rate debt. Consequently, they find themselves on the front lines of changes in monetary policy and economic slowdowns. In this respect, the resurgence of concerns over US interest rate trends is not good news.

Nevertheless, the index's recent success confirms a renewed investor interest in small caps. The trend is identical in Europe: the Berenberg European Small Cap ETF is currently outperforming the Stoxx 50, as illustrated by the recent rise of Soitec in France. This type of rotation is not unknown to the market; it is generally more indicative of a tactical choice than a long-term trend reversal.