{"id":21888,"date":"2026-01-26T11:00:40","date_gmt":"2026-01-26T11:00:40","guid":{"rendered":"https:\/\/businessprofittoday.com\/index.php\/2026\/01\/26\/russell-2000-rally-sustainable-or-january-effect-only\/"},"modified":"2026-01-26T11:00:40","modified_gmt":"2026-01-26T11:00:40","slug":"russell-2000-rally-sustainable-or-january-effect-only","status":"publish","type":"post","link":"https:\/\/businessprofittoday.com\/index.php\/2026\/01\/26\/russell-2000-rally-sustainable-or-january-effect-only\/","title":{"rendered":"Russell 2000 rally: sustainable or \u2018January effect\u2019 only?"},"content":{"rendered":"
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Investors have been loading up on small-cap stocks as they take a breather from the larger, possibly overvalued artificial intelligence (AI) names in recent weeks.<\/p>\n

This shift in sentiment that experts have dubbed the \u201cGreat Rotation\u201d has pushed the Russell 2000, a benchmark index that represents the US small-cap stocks, up some 8% since the start of this year.<\/p>\n

Still, Jeffrey Hirsch, a senior editor at the \u201cStock Trader\u2019s Almanac<\/em>\u201d, believes the small-cap index will push meaningfully higher from here in the months ahead.<\/p>\n

What\u2019s driven small-cap stocks up in 2026<\/h2>\n

Russell 2000\u2019s year-to-date performance sure makes you believe that good things do often come in small packages.<\/p>\n

The small-cap index has rallied nearly \u201cdouble digits\u201d this month, printing new highs, and leaving the S&P 500 trailing far behind as large-cap names continue to wrestle with keeping pace.<\/p>\n

According to Jeffrey Hirsch, several forces are driving this surge.<\/p>\n

For one, investors are expecting the Federal Reserve to lower interest rates further<\/a> in its upcoming meetings \u2013 a move that tends to benefit smaller companies more directly because of their heavier reliance on borrowing.<\/p>\n

Additionally, seasonal factors are playing a role as well. Hirsch pointed to the so-called \u201cJanuary Effect\u201d, where investors scoop up smaller names at the start of the year, especially ones that were beaten down by tax-loss selling in the final quarter.<\/p>\n

Why Russell 2000 could push further up this year<\/h2>\n

In his recent report, Jeffrey Hirsch also projected continued upside in the Russell 2000 index ahead.<\/p>\n

Historical data suggests small-cap stocks often outperform in February \u2013 with the aforementioned index averaging a modest gain while the SPX tends to tread water.<\/p>\n

Moreover, in midterm election years like 2026, the advantage is even more pronounced. <\/p>\n

Portfolio manager Daniel Lysik echoed his view, saying beyond seasonality, fundamentals are starting to look more attractive as well.<\/p>\n

Small-cap earnings growth has finally edged past that of larger companies \u2013 a milestone not seen in over three years.<\/p>\n

Lysik also highlighted valuations: small caps are trading at a deep discount relative to their larger peers, with a forward P\/E multiple roughly 30% lower. <\/p>\n

This could attract \u201cvalue-seeking\u201d investors who believe the market has overlooked smaller firms.<\/p>\n

Bottom line<\/h2>\n

All in all, sentiment is shifting. After a year dominated by AI giants<\/a>, many traders are eager to diversify into areas of the market that haven\u2019t yet been bid up to extremes.<\/p>\n

If rate cuts materialise and economic growth remains steady, small-cap stocks could be positioned to capture outsized gains.<\/p>\n

For investors, the message is clear: don\u2019t overlook the smaller names. <\/p>\n

They may not carry the same headline-grabbing weight as the tech titans, but in 2026, the underdogs of the equity market are proving they can deliver big results.<\/p>\n

The post Russell 2000 rally: sustainable or ‘January effect’ only?<\/a> appeared first on Invezz<\/a><\/p>\n

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