The last time small-cap stocks outperformed large-cap stocks was 2021. Before that, it was 2009. In both of those instances, small caps topped large caps by a relatively small margin. You have to go back to the turn of the century to find the last time small caps beat large caps by a relatively large percentage. Could that change in 2026? While it's still early in the year, small caps have been running well ahead of both mid caps and large caps. Valuation could be a big reason for this early trend, as both mid- and small-cap stocks are trading at 27% and 34% discounts, respectively, to their 20-year average price-to-earnings (P/E) ratios relative to the S&P 500.
Source: FactSet, as of January 21, 2026.