These ETFs Handily Outperformed the S&P 500 in January, and They're Just Getting Started

Core Viewpoint - The S&P 500 index has shown strong performance in January 2026, climbing 1.4%, but two specific ETFs have significantly outperformed this benchmark, indicating a potential trend favoring smaller companies [1][3][6]. Performance of ETFs - The Invesco S&P 500 Equal Weight ETF increased by 3.4% in January, while the iShares Russell 2000 ETF rose by 5.5%, showcasing their ability to outperform the S&P 500 index [3][4]. - Both ETFs provide a means to invest more heavily in smaller stocks, with the Equal Weight ETF distributing investments equally among S&P 500 components and the Russell 2000 ETF tracking the smallest 2000 companies by market cap [4]. Market Dynamics - Over the past three years, smaller companies have lagged behind large-cap stocks, particularly those in the AI sector, which have driven the S&P 500 to record levels of concentration, with the top 10 stocks making up 41% of the index's value [5]. - There is a potential reversal of this trend, suggesting that small-cap stocks and the equal-weight index may continue to outperform larger companies [6]. Economic Outlook - Macroeconomic factors are expected to favor smaller companies, particularly as the impact of last year's tariffs imposed by President Trump begins to wane. These tariffs had disproportionately affected smaller firms that lack the negotiating power of larger corporations [7][8]. - As the market adjusts to the absence of these tariffs, smaller companies are anticipated to experience improved earnings growth expectations [8].