Russell 2000 Stocks Outperform Big Tech to Start 2026 - First Time Since 2019
Small caps just pulled off a market coup.
For the first time in seven years, the Russell 2000 index has kicked off a new year by leaving the tech titans in the dust. It's a plot twist Wall Street didn't see coming—a reminder that the market's script can flip when everyone's betting on the usual suspects.
The Underdog Rally
While mega-cap tech stocks have dominated headlines and portfolios for the better part of a decade, a different story is unfolding in early 2026. The rally isn't being led by the usual trillion-dollar club; it's being driven by the smaller, often overlooked companies that form the backbone of the domestic economy. This isn't a blip—it's a statement.
What's Fueling the Shift?
The rotation suggests a change in investor appetite. After years of chasing hyper-growth in a handful of names, capital is searching for value and diversification. It's a classic case of the market doing what it does best: confounding expectations and punishing crowded trades. Some analysts are already calling it a healthy broadening—others whisper it's just money playing musical chairs before the music stops.
A Cynical Note from the Cheap Seats
Let's be real—this sudden love for 'main street' stocks probably has less to do with a deep-seated belief in small business and more to do with big funds realizing their tech holdings are looking a bit... bloated. Nothing sparks a newfound appreciation for diversification like the fear of a single-sector correction.
The early lead is established. Whether the small caps can hold it against the goliaths for the rest of 2026 is the billion-dollar question. For now, the little guys are having their moment.
Wall Street depends on earnings from outside tech now
The shift couldn’t have come at a weirder time. Tech is still expected to lead profit growth in the fourth quarter. Data from Bank of America says S&P 500 tech companies are set to grow earnings 20% compared to last year.
Non-tech earnings? They’re looking at a drop from 9% growth down to just 1%. That puts a lot of pressure on the other sectors to show they’re not dead weight.
Investors are watching names like Caterpillar, JPMorgan, and Procter & Gamble. These are the ones that need to prove the U.S. economy isn’t only surviving, but also pushing into real expansion. Analysts are already expecting that kind of message.
“This is the first start to the year that we’ve got broad stimulus tailwinds,” said Michael Kantrowitz, strategist at Piper Sandler. His top picks are transportation, housing, and manufacturing.
Tech still holds power but small caps pull fund flows
Bloomberg Intelligence says growth stocks are set to increase profits by three times the pace of value stocks. That’s 30% earnings growth for tech versus just 9% for value. Tech’s still the biggest slice of the growth pie, and that doesn’t change just because some people are bored of it.
But not everything outside tech is dragging. Industrials are expected to grow profits 13%. Consumer discretionary stocks are looking at 12%, and health care, materials, and staples are all projected to land just under 10%. So yeah, some of these sectors are actually showing real numbers.
And it’s not just projections. Real money is leaving tech. Last week, tech sector funds saw $900 million in outflows. At the same time, $8.3 billion went into other industries. That includes materials, health care, and industrials; sectors that are heavy in the Russell 2000.
According to Deutsche Bank, small-cap exposure just hit its highest point in nearly a year. Meanwhile, positioning in Big Tech continues to fall.
That’s not exactly a soft signal. The Fed’s easing is helping too. With rates lower, riskier parts of the market look more attractive. Add to that the growing doubt around AI’s staying power, and it makes sense that traders are backing off the megacaps and trying something new.
On the macro side, futures are softer. Dow futures dropped 63 points. S&P 500 futures were down 0.2%, and Nasdaq 100 fell 0.3%.
Traders are watching the CPI report, which is expected to show a 2.7% rise in prices over the past year. That WOULD match the softer inflation seen in November, even with last fall’s government shutdown messing up the data.
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