Daily Macro

Macro Notes - US Small Caps are Winning Big

June 10, 2026

Saakshi Mehta

Vice President, ETF & Alternatives Strategy

US small caps (Russell 2000) have delivered a strong 16% year-to-date return, outperforming the S&P 500’s 8% gain. This outperformance has been broad-based, underpinned by a rebound in small cap earnings and weakness in mega cap performance.

On the earnings side, small caps entered 2026 at valuations reflecting weak 12-month forward earnings expectations. Since then, earnings expectations have rebounded sharply, rising to roughly 50% year-over-year (vs 20% for the S&P 500).

Moreover, the S&P 500’s return has been constrained by weakness in its largest holdings. With the index heavily concentrated in a handful of mega-cap names, underperformance at the top has weighed on overall returns even as the broader market has held up well. Small caps have been less exposed to that risk, which has supported relative outperformance.

All said, small caps have surprised to the upside in the first half of the year. The challenge now is that much of the rebound appears to be priced in. The Russell 2000 is currently trading on a 12-month forward P/E of 25.0x, above the S&P 500’s 21.0x, which may limit further upside from here.

Chart 1: Expected Earnings Growth (%)

* Data as of June 9, 2026
Source: Bloomberg, BMO GAM

Chart 2: Top Constituents in S&P 500 and Russell 2000

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