Small-cap stocks post their strongest first half in decades

U.S. smallcap stocks ended the first half of 2026 with one of their strongest performances in 35 years. The Russell 2000 index rose nearly 22% this year, its best firsthalf gain since 1991, marking a sharp reversal after years of lagging larger companies. The rally has been driven in part by demand linked to artificial intelligence infrastructure, as spending on chips, equipment and related supplychain companies has broadened beyond the largest technology firms. Analysts also cited improving fundamentals, a valuation gap versus large caps, and expectations that profit growth may continue to expand across the market. At the same time, higher interest rates remain a key risk for smaller companies, which often rely more on floatingrate debt and refinancing. Market participants are watching the Federal Reserve’s next meetings closely, since additional rate increases could pressure earnings and sentiment for the sector.