These Minnows Are Smashing The Magnificent Seven

• The Russell 2000 is outperforming the S&P 500 for a potential 14th consecutive day, which would be the longest streak since 1996, and has already set seven record closing highs in 2026 compared to only nine in all of 2025
• Top-performing small caps include Corvus Pharmaceuticals (up 230% YTD), Red Cat Holdings (up 121%), and USA Rare Earth (up 98%), though only 10 of 46 stocks breaking out this year have market caps under $5 billion
• Strategists warn the rally may fade after the traditional 'January Effect,' with genuinely sustainable trends typically not emerging until mid-February or early March, and megacap tech earnings on Jan. 28 serving as a key litmus test for the rotation's durability

Market Summary: Small-Cap Stocks Outperform Magnificent Seven in 2026

Key Performance Metrics

Small-cap stocks are dramatically outperforming large-cap indices in early 2026. The Russell 2000 has surged over 10% year-to-date, vastly exceeding the S&P 500's approximately 1% gain and matching performance from the Nasdaq Composite. Meanwhile, the Magnificent Seven megacap stocks have declined 2% as a group.

The Russell 2000 is tracking toward its 14th consecutive day of outperforming the S&P 500—potentially the longest streak since 1996. The index has already recorded seven record closing highs in 2026, nearly matching all nine record highs from 2025.

Top Performing Small-Cap Stocks

Notable YTD performers include:

• Corvus Pharmaceuticals (CRVS): +230%
• Red Cat Holdings (RCAT): +121%
• USA Rare Earth (USAR): +98%
• Hycroft Mining (HYMC): +90%

Market Drivers

The rotation stems from multiple factors: the Federal Reserve's three quarter-point rate cuts in 2025 providing relief to interest-rate-sensitive sectors, potential fiscal stimulus from the "One Big Beautiful Bill Act," and surprisingly strong GDP data signaling broadened economic growth beyond megacap tech.

Cautionary Notes

Analysts warn the rally may not sustain. Northwestern Mutual's Brent Schutte and LPL Financial's Kristian Kerr note that year-end tax-loss selling artificially depressed small caps, creating rebound potential. Historical patterns show early-year rotations often reverse by mid-February or early March. Upcoming megacap earnings reports on January 28 will provide critical insight into whether this trend has staying power.