After a long period of underperformance, small-cap U.S. stocks may be staging a comeback. While it's too early to say for sure whether this is the start of a sustained rally or just an occasional rise, recent data shows encouraging signs for small-cap investors.
Recent Performance: Small Caps Rebound
The Russell 2000 index — a benchmark for small-cap stocks — started to gain momentum from July 22, 2025. While the large-cap fund SPDR S&P 500 ETF Trust SPY added 4.7% past month, the small-cap fund iShares Russell 2000 ETF IWM advanced 4.6%, moving almost in line with the large caps. This surge suggests growing investor interest and possibly a shift in market sentiment toward smaller companies.
Looking at a three-month view, the Russell 2000 has climbed 18.58%, almost in line with the S&P 500’s 18.18% gain. Such figures mark a notable change from the earlier trends, where small caps have struggled consistently.
Despite the recent outperformance, small caps are still trailing large caps for the year. As of now, large-cap stocks are up 8.7% this year compared to just 1.6% for small caps. Much of the early-year weakness in small caps came after President Trump announced higher tariffs in April, which hit smaller companies hard.
What Does the Earnings Picture Say?
For the small-cap S&P 600 index, we now have Q2 results from 62 index members. Total earnings for these companies are up 16.9% from the same period last year on 7.8% higher revenues, with 71% beating EPS estimates and an equal proportion beating revenue estimates.
The proportion of these 62 index members beating both EPS and revenue estimates, or the so-called “blended beats %,” is 51.6%, as quoted on the Earnings Trends issued on July 23, 2025.
Note that, for the 117 large-cap S&P 500 companies that have already reported Q2 results, total earnings are up 8.3% from the same period last year on 5.3% higher revenues, with 87.2% beating EPS estimates and 80.3% beating revenue estimates.
Bottom Line
The above comparison shows that the small caps are catching up on the growth front, although still lagging large caps on beat ratios. However, the tide could be turning in favor of small-cap stocks, though it is too early to say. Investors should be watching closely to see this long-ailing segment.
ETFs in Focus
Against this backdrop, below we highlight a few winning small-cap exchange-traded funds.
Invesco NASDAQ Future Gen 200 ETF QQQS – Up 2.2% past week
Acquirers Small and Micro Deep Value ETF DEEP – Up 3.9%
Sprott Junior Gold Miners ETF SGDJ – Up 3.1%
Pacer US Small Cap Cash Cows ETF CALF – Up 1.1%
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SPDR S&P 500 ETF (SPY): ETF Research Reports iShares Russell 2000 ETF (IWM): ETF Research Reports Sprott Junior Gold Miners ETF (SGDJ): ETF Research Reports Pacer US Small Cap Cash Cows ETF (CALF): ETF Research Reports Acquirers Small and Micro Deep Value ETF (DEEP): ETF Research Reports Invesco NASDAQ Future Gen 200 ETF (QQQS): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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