A rotation into small-company stocks has upended the U.S. equity market in 2026, with the Russell Microcap index of the smallest publicly traded companies surging 21% year-to-date, according to analysis published Friday by The Wall Street Journal. The gain outpaced the S&P 500’s advance — about 11% in the same period — and dwarfed the 6% rise in the Russell Top 50 index of super-megacap stocks, the Journal reported. WSJ columnist James Mackintosh attributed the divergence to a combination of speculative frenzy, an oil-price shock tied to the U.S.-Israeli conflict with Iran, and mechanical oddities in how stock index providers classify companies.
The speculative component is most visible in the smallest shares, Mackintosh wrote. Penny stocks — typically defined as equities trading below $5 — have risen 28% on average since March 30, beating both non-penny stocks in the Microcap index and the Magnificent Seven of Amazon, Alphabet, Apple, Meta, Microsoft, Nvidia and Tesla. The Journal noted that such rapid moves in obscure companies are often driven by investor mania rather than underlying business fundamentals.
A separate factor was the first-quarter oil-price spike, the Journal reported. The U.S.-Israeli attack on Iran triggered a rush to sell the largest, most liquid stocks — including Magnificent Seven members, which fell 16% in the first three months. Smaller companies with domestic focus fared better, Mackintosh said, because the U.S. is a net exporter of petroleum products that cushions domestic consumers from higher fuel prices. “In a panic, you sell what you can, not what you want,” Mackintosh wrote. The biggest stocks are the easiest to sell quickly, while tiny stocks are often difficult to unload.
Index mechanics also played a role. The Journal reported that two companies that have grown enormously — Bloom Energy, a fuel-cell producer now worth $83 billion, and SanDisk, a memory-chip maker valued at $261 billion — remain classified in the Russell 2000 small-cap and Russell 1000 mid-cap indexes, respectively. Bloom Energy, up 235% in 2026 and more than 14-fold in the past 12 months, will vault directly to the Russell 200 large-cap index at the next annual reconstitution later this month, a jump that FTSE Russell said would be the first time a stock has skipped the mid-cap category since at least 2008. Until then, the company’s towering gains count toward the small-stock gauge, inflating perceived small-cap returns.
FTSE Russell, which manages the Russell indexes, announced it will switch to semi-annual rebalancing instead of once a year to reduce such distortions, the Journal reported.
Mackintosh warned that the last two occasions when small-cap stocks beat large caps by such wide margins preceded painful periods for investors. In 2021, a speculative bubble in small tech, special-purpose acquisition companies and cannabis stocks burst. In late 2022 and early 2023, small stocks rebounded strongly only to stagnate as Big Tech roared ahead. “When speculative small stocks win big, often it’s because investors aren’t thinking straight,” Mackintosh wrote. The Dow Jones Industrial Average, a broad measure of 30 blue-chip stocks, stood at 51,561.93 as of June 5, according to Federal Reserve data.