After a strong start to 2026, the iShares Russell 2000 ETF (NYSEMKT: IWM) is up 18% year to date. That nearly doubles the 10.7% return for the S&P 500. But the early momentum for small caps and other non-tech stocks has faded once the artificial intelligence (AI) trade returned in full force in April.
Now investors need to weigh a positive outlook for economic growth and corporate earnings, but also deal with higher inflation, an uncertain geopolitical environment, and higher-for-longer interest rates. Which of these factors wins out will likely determine whether small caps are still a buy here.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Toward the end of 2025, small caps were being weighed down by the pressure of high interest rates and the financial impact of tariffs. Small companies tend to be more debt-dependent than large ones, so higher rates present a greater relative financial cost. Tariffs also disproportionately hurt small caps because they don't have the ability or flexibility to easily alter supply chains or negotiate terms as large companies do.
In February 2026, however, the Supreme Court struck down many of the U.S. tariffs issued in 2025 as unlawful. With that major headwind eased, small caps now had a more optimistic outlook.
Now investors need to weigh a positive outlook for economic growth and corporate earnings, but also deal with higher inflation, an uncertain geopolitical environment, and higher-for-longer interest rates. Which of these factors wins out will likely determine whether small caps are still a buy here.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Toward the end of 2025, small caps were being weighed down by the pressure of high interest rates and the financial impact of tariffs. Small companies tend to be more debt-dependent than large ones, so higher rates present a greater relative financial cost. Tariffs also disproportionately hurt small caps because they don't have the ability or flexibility to easily alter supply chains or negotiate terms as large companies do.
In February 2026, however, the Supreme Court struck down many of the U.S. tariffs issued in 2025 as unlawful. With that major headwind eased, small caps now had a more optimistic outlook.
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