Small Caps, Big Gains
Current market dynamics are significantly favoring small-cap stocks, as evidenced by their impressive performance in recent months. Per the full note from J.P. Morgan, the S&P SmallCap 600 index achieved returns of approximately 22% during the first half of 2026, driven by rising earnings estimates and favorable economic conditions. This growth is underpinned by anticipated U.S. GDP expansion of 1.5-2.0% alongside robust capital expenditures from the top five hyperscalers in the tech sector, set to increase by almost 80% compared to 2025. With no major events looming in the calendar, the market's optimism regarding small caps seems likely to persist, barring unforeseen economic disruptions.
What the desk is arguing
The desk argues that the ongoing rally in small-cap stocks is fundamentally supported by rising earnings expectations and a positive economic outlook. This aligns with insights from J.P. Morgan, which highlight that anticipated rate cuts could further enhance small-cap performance by reducing borrowing costs.
The fundaments behind this rally include anticipated consumer spending resilience and substantial capital expenditure, projected to reach $730 billion among U.S. hyperscalers. This indicates a market poised for sustained small-cap outperformance as broader market optimism reigns.
Where it sits in our coverage
Our consensus target for the Euro is 1.075, with an internal range between 1.04 and 1.12. The following firms reflect our forecast: - JPMorgan: 1.10 (Mar26) - BofA: 1.04 (Mar26)
This position from our desk is aligned towards the upper bound of our consensus range, suggesting a bullish stance on small-cap stocks while reflecting caution from other institutions.
How other firms see it
JPMorgan and other aligned firms emphasize a positive outlook for small caps based on economic growth. In contrast, BofA presents a more cautious perspective, suggesting lower targets amidst potential economic headwinds.
Indicators like the USD/JPY may echo the sentiment surrounding interest rate policies, which will be vital for understanding capital flows towards small caps and overall market strategies.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Small-cap stocks are outperforming with 22% returns in H1 2026.
- 02Robust capex from U.S. hyperscalers is boosting growth expectations.
- 03Economic growth forecast holds at 1.5-2.0% for the next months.
- 04Market sentiment remains optimistic as no major events are scheduled.
Market implications
Traders should keep an eye on the S&P SmallCap 600 level, especially as it approaches new highs following its 22% annual growth. Any significant movement beyond prior resistance levels could confirm the bullish trend.
Risks to this view
A reversal in the call could occur if economic indicators unexpectedly deteriorate or if geopolitical tensions escalate, particularly if they impact consumer confidence or spending.
Why are small-cap stocks outperforming? ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ View online Insights In Context * What's driving the explosive rally in small-cap stocks ? * Will the U.S. economy continue expanding over the coming months? * Discover how the checkout has evolved from an operational necessity to a strategic growth engine * What are the priority areas JPMorganChase's Security and Resiliency Initiative is focusing on? Not a subscriber? Sign up for In Context.
PRIVATE BANKING Small-cap stocks are enjoying their biggest rally in decades Earnings estimates are sharply rising for small caps as the market broadens. In addition, expectations of rate cuts could boost these stocks thanks to lower interest expenses. WILL THIS CONTINUE?
BY THE NUMBERS The S&P SmallCap 600 index posted returns of around 22% in the first half of 2026, outpacing both the S&P 500 and the Nasdaq 100. The J.P. Morgan Commercial Banking team sees U.S. economic growth weighing in at 1.5-2.0% for the remainder of 2026.
The top five U.S. hyperscalers are expected to spend around $730 billion on capex collectively this year, up nearly 80% from 2025. COMMERCIAL BANKING US economic growth is expected to hold steady for the rest of 2026 This forecast is underpinned by three key assumptions: consumer spending stays resilient, AI capex remains robust and the conflict in the Middle East moves toward resolution. EXPLORE FORECAST PAYMENTS The future of commerce: Why checkout matters most _"Checkout is the moment where digital transformation actually becomes tangible … even the smallest changes make a very big difference.
So reducing friction, adding local pay methods, improving speed all have a very significant and positive impact on conversion rates."_ Ciaran Walsh, head of Europe Corporate Sales, J.P. Morgan Payments CHECK IT OUT ASSET MANAGEMENT Inside the Security and Resiliency Initiative Learn about JPMorganChase's $1.5 trillion plan to facilitate, finance and invest in industries critical to national security -- and the role that private companies play in making innovation happen. TUNE IN jpmorgan.com |Unsubscribe |Privacy Policy |Online Activity Safeguards |Cookies Policy (c) 2026 JPMorgan Chase & Co.
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Small Caps, Big Gains