The Stage Looks Set for a Small-Cap Surge-Here are the Stocks on My Radar

"If you're like many investors, you probably don't have enough small- or mid-cap stocks in your portfolio. Undoubtedly, after strong gains from the cap-weighted S&P 500, it's not like you need the smaller names to help power you to impressive gains. That said, with extended valuations in big tech (and the broader S&P 500 in general), many investors may be wondering if it's time to pursue opportunities that might be able to score more growth without having to pay a premium price tag."

"Perhaps it's because we're unfamiliar with the small names that are outside of the S&P 500, or maybe it's because of the extra volatility that they tend to exhibit. Maybe it's because many of the names are much harder to value, given their earnings profiles can fluctuate wildly, making them tougher to value. And while not all small-cap stocks are unprofitable, many of them are, making them seem much riskier than the blue chips we've known to love over the years."

"Finally, perhaps the biggest case against going big on the small caps is their relative underperformance over the years. It really doesn't matter which small-cap index you look at; odds are, it's trailed the S&P 500 by a wide margin, especially in recent years, as the Mag Seven giants took off, contributing to much of the S&P's incredible recent performance. Bank of America sounds upbeat on the small caps for 2026"

Many investors hold too few small- or mid-cap stocks despite potential upside relative to extended big-cap valuations. Extended valuations in big tech and the broader S&P 500 increase the appeal of finding growth without premium prices. Investors often avoid small caps due to unfamiliarity, greater volatility, and more variable earnings that complicate valuation. A sizable share of small-cap companies are unprofitable, increasing perceived risk versus established blue chips. Small-cap indexes have trailed the S&P 500, especially during the rise of the Mag Seven. Bank of America projects that small- and mid-cap stocks could outperform in 2026 amid expected Federal Reserve rate cuts.

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