Small-Cap Stocks Extend Winning Streak Over S&P 500 to 18 Consecutive Months

Small-cap stocks have outpaced the S&P 500 for 18 consecutive months, the longest winning streak since 2019, according to market data. This period of sustained outperformance began in June 2024 and has seen the Russell 2000 Index gain 14.7% year-to-date through December 2025, compared to the S&P 500’s 8.3% return over the same timeframe. The momentum has been driven by strong earnings growth in smaller firms, particularly within technology, consumer discretionary, and industrials sectors. The divergence reflects a broader rotation in investor sentiment. As interest rate expectations stabilized in late 2024, risk appetite increased, favoring smaller, more agile companies with higher growth potential. Small-cap valuations, measured by a price-to-earnings ratio of 21.4, have remained below their 10-year average of 24.8, suggesting room for further upside. In contrast, the S&P 500’s P/E ratio has held above 26, reflecting elevated valuations in large-cap growth stocks. Market participants are closely watching the implications for asset allocation strategies. Pension funds and institutional investors have increased small-cap exposure by 12% in the past year, according to internal portfolio reports. Meanwhile, exchange-traded funds tracking small-cap indices have attracted $19.3 billion in net inflows since January 2024, highlighting growing confidence in the segment. The trend has also impacted sector performance. Small-cap technology stocks rose 28.4% in 2025, significantly outpacing large-cap tech’s 17.9% gain. Analysts note that this shift may persist if economic data continues to support modest growth and inflation remains contained, creating a favorable environment for smaller firms to scale operations.