Whenever markets get a little bit wobbly, investors look at all the usual suspects to try and figure out what’s going on. They always start with the big names like the S&P 500 ($SPX) and all those mega-cap tech stocks that are always grabbing headlines. But over the past few days, we’ve all been given a painful reminder that small caps can provide a much clearer picture of what’s looming over the horizon. And right now, it’s not looking good. More News from Barchart On Friday, the Russell 2000 Index of ...

Core Insights - T. Rowe Price's Small-Mid Cap ETF (TMSL) attracted $30.88 million in inflows, marking it as the second-largest inflow among the firm's ETFs [1] - U.S. small-caps are currently trading at a 25% discount to large-caps, excluding unprofitable firms, indicating a potential investment opportunity [1] - Goldman Sachs forecasts that small-caps are positioned for gains in 2026 due to cyclical strength, earnings recovery, and renewed capital market activity [1] Fund Performance - TMSL experienced a 5.7% decline over the past five days but still attracted inflows, suggesting investors see recent price weakness as a buying opportunity [1] - The ETF has posted a 1.9% loss over the past month and manages $1.60 billion in assets with a 0.55% expense ratio [1] Investment Strategy - The ETF focuses on companies with attractive valuations, improving cash flow, high return on capital, and strong balance sheets [1] - Goldman's report emphasizes the need for careful security selection in the current environment, highlighting a significant performance gap between the top and bottom stocks in the Russell 2000 Index [1] Economic Outlook - U.S. small-cap companies generate 80% of their revenue domestically, which may benefit from anticipated domestic growth as U.S. GDP is expected to accelerate in the first half of 2026 [1] - Key sectors for TMSL include industrials and business services (21.1%), financials (16.8%), and information technology (16.8%) [1]

Core Insights - Small-cap stocks have outperformed the S&P 500 for eight consecutive days, with the iShares Russell 2000 ETF (IWM) gaining 5.4% year-to-date [1] - Four small-cap stocks are highlighted for their strong performance and growth potential: Wolverine World Wide, Gorman-Rupp, Evolv Technologies, and Select Water Solutions [1] Company Summaries - **Wolverine World Wide (WWW)**: Reported Q4 2025 revenue of $517.5 million, exceeding estimates, with a year-over-year growth of 4.6%. Adjusted EPS was $0.45, surpassing the $0.44 estimate. Full-year net income reached $101 million, more than doubling year-over-year. The stock is up 34.5% year-to-date [1] - **Gorman-Rupp (GRC)**: Achieved record net sales of $682.4 million for full-year 2025, a 3.4% increase year-over-year. The company ended 2025 with a backlog of $244 million, up 18.4% from the previous year. The stock has gained 34.5% year-to-date [1] - **Evolv Technologies (EVLV)**: Reported Q3 2025 revenue of $42.9 million, beating estimates by 27.4% and growing 57% year-over-year. The net loss narrowed significantly to $1.8 million from $30.4 million in Q3 2024. The stock is down 26.0% year-to-date despite operational progress [1] - **Select Water Solutions (WTTR)**: Q3 2025 revenue was $322.2 million, down 13.2% year-over-year. The stock is up 29.9% year-to-date, with a consensus analyst target of $17.30, above the current trading price [1] Market Trends - The small-cap rotation is gaining attention, with the IWM's outperformance indicating a macro trend that could benefit various companies. Each highlighted stock has a fundamental catalyst supporting its growth [1]

Core Viewpoint - The iShares Russell 2000 ETF (IWM) has outperformed the S&P 500 in 2026, gaining 6.8% year-to-date compared to a 0.1% decline in the S&P 500, and achieving a 17.6% return over the past year versus the S&P 500's 14.9% [1] Performance Comparison - The iShares Russell 2000 ETF has shown a significant performance advantage over the S&P 500, with a year-to-date gain of 6.8% and a one-year return of 17.6% compared to the S&P 500's 0.1% decline and 14.9% gain respectively [1] - The Russell 2000 Index, which the iShares ETF tracks, returned only 2.2% annually from 2020 to 2024, while the S&P 500 averaged 15.1% during the same period [1] Economic Context - Small-cap stocks, represented by the Russell 2000, faced challenges during the pandemic, including higher debt loads and inflation pressures, which led to underperformance compared to large caps [1] - The Federal Reserve's rate cuts in 2025, reducing the federal funds rate to 3.50%-3.75%, provided relief to small businesses, allowing for a rebound in earnings, which grew by 12% in late 2025 [1] Investment Characteristics - The iShares Russell 2000 ETF manages $76.2 billion in assets and has an expense ratio of 0.19%, making it a cost-effective option for investors seeking exposure to small-cap stocks [1] - The ETF's holdings are diversified across sectors such as industrials (19%), financials (17%), and healthcare (17%), with no single stock exceeding 1% of assets [1] Future Outlook - Economists project that the Federal Reserve may implement two to three more rate cuts in 2026, potentially lowering rates to 2.75%-3.00%, which could further benefit small-cap stocks [1] - Historically, small-cap stocks have outperformed large caps over long periods, delivering a 2% to 3% annual premium since 1926, except during periods of high interest rates [1]

Core Viewpoint - The article discusses the increasing interest in small and micro-cap stocks, particularly penny stocks, as investors seek opportunities amid concerns of a market correction, with Goldman Sachs highlighting its top 12 penny stock picks [1][4]. Market Performance - The S&P SmallCap 600 index has risen over 6% this year, while the iShares Micro Cap ETF is up about 8%. In contrast, the S&P 500 has only increased by 0.35% during the same period, indicating a shift in investor focus towards undervalued small-cap stocks [2]. - Small stocks have underperformed compared to large stocks in recent years, but there is an expectation of earnings growth that could lead to a rotation towards small-cap stocks [3]. Economic Outlook - Goldman Sachs maintains a positive macro outlook for small-cap stocks, predicting that the economic environment will support their performance through 2026. The expectation of interest rate cuts is seen as beneficial for penny and small-cap stocks [4][5]. - The firm believes that the markets are not fully accounting for the potential strength of the US economy in the coming year, which typically favors small-cap stocks during cyclical rallies [5]. Investment Strategy - Goldman Sachs' methodology for selecting its top penny stock picks involves analyzing equity holdings, focusing on companies trading under $5 per share, and considering their popularity among hedge funds [7]. - The strategy of imitating top hedge fund stock picks has historically outperformed the market, with a reported return of 427.7% since May 2014 [9]. Company Highlights - **Grupo Televisa, S.A.B. (NYSE:TV)**: Goldman Sachs holds an equity stake of $902,471, with a share price of $3.32. The company is expected to release its fourth-quarter results soon, with optimistic projections for 2026 due to favorable economic conditions in Mexico [10][11][12]. - **AtaiBeckley Inc. (NASDAQ:ATAI)**: Goldman Sachs has a stake of $2.38 million in AtaiBeckley, which is focused on developing treatments for mental health disorders. The company has shown promising clinical data for its drug BPL-003, which has received Breakthrough Therapy designation from the FDA [16][17][19][20].

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].

Core Insights - The iShares Russell 2000 Value ETF (IWN) and iShares SP Mid-Cap 400 Value ETF (IJJ) were both launched 20 years ago but have diverged in performance and characteristics [1][2]. Cost & Size Comparison - IWN has an expense ratio of 0.24% and an AUM of $12.59 billion, while IJJ has a lower expense ratio of 0.18% and an AUM of $8.47 billion [3][4]. - The 1-year return for IWN is 18.44%, compared to IJJ's 10.84%, and IWN has a dividend yield of 1.53% versus IJJ's 1.7% [3]. Performance & Risk Comparison - Over the past five years, IWN experienced a maximum drawdown of 26.71%, while IJJ had a lower drawdown of 22.68% [5]. - A $1,000 investment in IWN would have grown to $1,338, whereas the same investment in IJJ would have grown to $1,528 [5]. Portfolio Composition - IJJ focuses on mid-cap value stocks, with significant holdings in financial services, industrials, and consumer cyclical sectors, totaling 311 holdings [6]. - IWN, in contrast, holds a broader array of 1,413 small-cap stocks, with top holdings including EchoStar Corp., Hecla Mining Company, and TTM Technologies, reflecting a wide diversification [7]. Investment Implications - Investors' choice between IWN and IJJ may hinge on their risk tolerance, as small-cap stocks (IWN) are generally more volatile than mid-cap stocks (IJJ) [8][10]. - IJJ has outperformed IWN by over 20% in both the last five years and since inception, making it a more stable option with potential for price gains [10].

Group 1 - 2026 is expected to be a favorable year for small-cap stocks as the AI rally matures according to market analysts [1] - The article highlights the importance of interest rates in shaping market conditions for small-cap stocks [1] Group 2 - The author emphasizes the significance of dividend-paying income stocks and funds for retirement income [1] - There is a focus on the psychological aspects of market behavior alongside financial trends [1]

Core Insights - The iShares MSCI Small-Cap ETF (SMIN) focuses on approximately 500 small-cap stocks from India, which is recognized as the fastest-growing G20 economy [1] - SMIN has a total size of $700 million and has been in existence for 14 years [1] Company and Industry Summary - SMIN targets small-cap stocks, indicating a focus on companies that may have higher growth potential compared to larger firms [1] - The ETF's emphasis on the Indian market highlights the investment opportunities within emerging economies, particularly in sectors that are expected to grow rapidly [1]

Group 1: Market Overview - The analysis covers the performance of the US Small Cap 2000 index, indicating a focus on smaller companies within the US market [1] - The report highlights trends and potential investment opportunities in the small-cap sector, which may be influenced by broader economic conditions [1] Group 2: Company-Specific Insights - Green Plains Renewable Energy Inc is noted for its advancements in renewable energy production, positioning itself favorably in the growing green energy market [1] - HCI Group Inc is discussed in the context of its insurance operations, with emphasis on its financial performance and market positioning [1] - Willdan Group Inc is recognized for its consulting services in energy efficiency and infrastructure, reflecting its role in the evolving energy landscape [1]