Small Caps Hit Records as Big Indexes Slip

Small-Cap Rally Sets New Records

Smaller US stocks ended the week at record levels, extending a strong start to 2026 even as the broader market slipped. The Russell 2000 index of small-cap companies rose 0.1% on Friday, enough to notch a fresh record close. That modest gain stood out against declines in the larger benchmarks and capped what several reports described as a stellar week for small caps.

The Russell 2000 has now advanced 7.9% to 8% so far this year, its strongest start since 2021 and well ahead of the sub‑2% gains in the S&P 500 and Nasdaq. For the week, the index climbed 2%, even as the S&P 500, Dow and Nasdaq all posted weekly losses. Growing optimism about the economy was cited as supporting demand for smaller, domestically focused companies.

Friday’s close also underscored how far small caps have pulled ahead of large caps in recent sessions. While all three major averages (^DJI, ^IXIC, ^GSPC) ended the day and the week in negative territory, the Russell 2000 finished higher on both bases, highlighting a notable shift in market leadership at the outset of the new year.

Russell 2000 Outperforms for 11th Straight Day

The small‑cap benchmark has now outpaced the S&P 500 for 11 consecutive trading sessions. The Russell 2000’s 0.1% rise on Friday was enough to extend that streak, which Dow Jones Market Data said is the longest run of outperformance versus the S&P 500 since June 2008. Multiple accounts described small caps as being “on a tear” to start 2026.

This stretch has seen the Russell 2000 repeatedly beat the broader market on a daily basis even when overall equity indexes were flat or lower. While large‑cap defensive sectors played a role on Friday, the clearest trend across the week’s trading was the sustained strength in smaller companies relative to their larger peers.

Market commentary also framed the move in small caps alongside increased breadth in the market as 2026 begins. While Big Tech remains influential, the early weeks of the year have shown gains spreading beyond the largest names, with small caps emerging as a key beneficiary.

Major Indexes Ease as Earnings Season Builds

Against the backdrop of the small‑cap surge, the major US stock benchmarks slipped on Friday and logged weekly losses. The S&P 500 fell about 0.1%, or 4.46 points, to 6,940.01, while the Dow Jones Industrial Average declined 83.11 points, or 0.2%, to 49,359.33. The Nasdaq Composite lost 14.63 points, or 0.1%, to finish at 23,515.39.

For the week, the S&P 500 dropped 0.4%, the Dow 0.3%, and the Nasdaq 0.7%, with all three ending what was described as a volatile or switchback week modestly lower. Still, each remains up for the year, with the S&P 500 higher by 1.4%, the Dow by 2.7% and the Nasdaq by 1.2%, leaving markets trading near record levels despite the pullback.

Friday’s action came as the first week of fourth‑quarter earnings season wrapped up. Several big banks had already reported, and a handful of regional lenders followed with mixed results. PNC Financial jumped after beating Wall Street’s fourth‑quarter targets, while Regions Financial fell after missing forecasts. Strong bank earnings were one of the themes cited in describing the week’s trading.

Fed Chair Uncertainty and Sector Moves

Broader sentiment was influenced by uncertainty over the next Federal Reserve chair. US stocks were described as little changed earlier in the day as markets digested President Trump’s latest comments on Kevin Hassett. The president expressed reluctance to name Hassett as the next Fed chief, remarks that fueled speculation the central bank might not be as dovish as some investors had expected once Jerome Powell steps down in May.

The week also featured geopolitical tensions and policy headlines, including issues related to Iran, Greenland and a criminal probe involving the Federal Reserve, which were cited as contributing to the choppy backdrop. Investors now face a long weekend, with US stock and bond markets closed Monday for Martin Luther King Jr. Day.

Within sectors, chipmakers and precious metals drew attention. TSMC and Nvidia shares gained, helped in part by a US‑Taiwan trade deal that includes a large planned boost to American chip and tech manufacturing, and by a strong TSMC quarterly report that revived AI‑linked enthusiasm. Silver prices fell on Friday as tariff concerns eased but remained up more than 15% for the week after what was described as a blistering rally.