Small and Mid‑Cap Stocks Outpace Giants in 2026

Small‑ and mid‑cap equities are leaving their large‑cap counterparts in the dust in 2026, with Jodi Love's T. Rowe Price Small‑Mid Cap ETF (TMSL) leading the charge.

The Surge of Small and Mid‑Cap Equities

■Year‑to‑date returns climb to %20, outpacing large‑cap indices that sit just under %10.

■After ten consecutive quarters of declining earnings forecasts, the fourth quarter of 2024 reversed the trend, projecting a %20 earnings growth trajectory.

■TMSL delivered a %26.62 return over the past twelve months.

Jodi Love’s Strategic Emphasis

On Bloomberg’s “ETF IQ,” Jodi Love argued that the era of mega‑caps and AI‑centric leadership is waning, and that small‑caps are now capturing a fresh valuation wave. She highlighted that small‑caps trade at a %20‑%35 discount to large‑cap benchmarks, providing ample upside from a lower valuation base.

Valuation Gaps and Upside Potential

■Small‑ and mid‑cap stocks sit %20‑%35 below large‑cap price‑to‑earnings multiples.

■This discount fuels growth for “pick‑and‑shovel” firms benefiting from big‑tech capital expenditures.

Targeted Sector Overweights

■Early exits of SanDisk Corp., Ciena Corp., and Fabrinet—companies that graduated from the Russell 2500—were executed to lock in gains.

■Vertex Pharmaceuticals Inc. acquired Crinetics Pharmaceuticals Inc. for $10 billion, marking a notable consolidation in biotech.

■Love overweighted industrials, financials, and healthcare (including aerospace‑defense, regional banks, and biotech) within the fund.

Fresh IPO Wave and Trading Dynamics

■2025‑2026 saw weekly new listings, especially in the industrial sector, after a year‑long lull.

■This influx of new entrants revitalizes the small‑cap space as liquidity improves.

Small‑cap equities present a rare blend of value and growth in 2026. Actively managed vehicles like TMSL excel at spotting early sectoral shifts. Companies that serve the AI supply chain—particularly in infrastructure and services—are gaining weight, offering a risk‑balanced upside. As liquidity conditions improve and IPO activity picks up, volatility in this segment should ease, delivering a discount‑driven opportunity for investors. The continuation of this trend into 2027 underscores the strategic positioning of small‑caps beneath the shadow of large‑cap indices.