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Small-cap stocks are outperforming to start 2026, with the Russell 2000 (RUT) index up more than 6% so far in January.

Analysts say that small-cap stocks are hot to begin the new year as investors rotate away from richly valued mega-cap technology names and seek out value in the market.

So far in 2026, the Russell 2000 index of small-cap names is outpacing the blue-chip Dow Jones Industrial Average, the benchmark S&P 500 index, and the technology-heavy Nasdaq (NDAQ).

The current rally extends gains seen in small-cap stocks that began last autumn and continued through the end of 2025.

Small-cap stocks are loosely defined as securities that have a market capitalization of $10 billion U.S. or less.

Through two weeks of the year, the Russell 2000 and the S&P Small Cap 600 indices are trending higher.

Beyond the investor rotation, analysts say small-cap stocks are responding to lower interest rates and a resilient U.S. economy.

Small-cap stocks also tend to trade at discounts to larger stocks.

The S&P Small Cap 600 index currently trades at around 15.6 times future earnings estimates. That's 31% lower than the S&P 500's current price-to-earnings ratio of 22.6.

Analysts expect the rally in small-cap stocks to continue as profits for smaller companies are expected to grow at a faster clip than earnings for the average S&P 500-listed concern.

According to data from FactSet, earnings per share (EPS) for the S&P Small Cap 600 index are forecast to rise 15.4% in 2026 compared to 14% growth for the S&P 500 index.

Well-known small-cap stocks include The Gap (NYSE: $GAP ), Shake Shack (NYSE: $SHAK ), and e.l.f. Beauty (NYSE: $ELF ), among many others.