Core Viewpoint - Small-cap stocks and related ETFs have faced challenges in 2023, but there are signs of recovery and potential growth for these assets heading into 2026, particularly highlighted by recent performance metrics [1][6]. Performance Indicators - The Russell 2000 Index has gained 4.33% over the past month, while the Invesco NASDAQ Future Gen 200 ETF (QQQS) has returned over 6% in the same period, indicating a positive trend for small-cap investors [1]. - Historically, small-cap stocks have outperformed large-cap stocks in the months following Federal Reserve interest rate cuts, with data showing this trend since 1990 [2]. Market Dynamics - Increased mergers and acquisitions activity, along with more accommodating regulatory policies, are expected to contribute to the favorable outlook for small-cap stocks [2]. - The QQQS ETF allocates nearly 52% of its weight to healthcare stocks, which are rumored to be potential takeover targets, enhancing its attractiveness [2]. Valuation Insights - Small-cap stocks currently exhibit undemanding valuations despite recent strength, making them an appealing option for growth and diversification [3][4]. - The QQQS ETF has a significant allocation (71%) to healthcare and technology sectors, which are typically seen as richly valued in the small-cap space [3]. Risk and Market Sentiment - The QQQS ETF is considered to have a manageable risk profile, with potential support from market participants willing to embrace risk in the small-cap sector [5]. - The recent rally in small-cap stocks has been driven by falling interest rates and economic growth, which are expected to continue benefiting this asset class [6].