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Further Reading from MarketBeat Small Caps Break Out! Russell 2000 Poised for 40% GainAuthored by Thomas Hughes. Originally Published: 1/16/2026. 
Article Highlights - 2026 trends point to an acceleration of small-cap gains as tailwinds turn into positive feedback loops.
- The Russell 2000 is well-positioned in early January and could rise 45% within quarters.
- Stock selection is critical as many small-cap names will struggle with competition and execution.
While the S&P 500, Dow, and Nasdaq were mixed to start the year, the Russell 2000 (INDEXRUSSELL: RUT) moved up to a new high and extended gains the following week. 
On September 9th, the government quietly revised 911,000 jobs out of existence. It was the largest job report correction in a quarter century. Most investors shrugged, but it signals something bigger. AI isn't slowing down. Companies are replacing tasks and entire teams faster than official data can track. While retail investors chase the same big AI names, institutions are rotating into the infrastructure that makes AI possible: power grids, energy equipment, and transmission systems. This mirrors the late 1990s when the biggest winners weren't dot-com stocks but the companies building the internet itself. See the seven AI infrastructure plays flagged for this buildout. The breakout is a bullish technical signal across multiple time frames. Based on prior move sizes, this rally could advance by about 750 points as a conservative target and, in a stronger scenario, rise up to 45% from the breakout point. A 750-point gain would put the index near 3,250; a 45% advance would push it toward roughly 3,650. Here's a look at what's driving the move. Market Rally Broadens as Economic Strength Drives Upside Several factors converged in early 2026, suggesting a cyclical rally is underway. Profitability, economic strength, and valuations are supporting a catch-up trade in the non-tech and small-cap stocks that comprise the Russell 2000 Index. Moderating interest rates and inflation, along with operational improvements and a healthy consumer, are likely to support accelerating growth in non-tech names through 2026. Meanwhile, the Atlanta Fed's GDPNow model estimates Q4 GDP growth at 5.3%, indicating economic momentum accelerated into the end of 2025. Early signs — including anecdotal evidence in JPMorgan's (NYSE: JPM) January earnings release — suggest these tailwinds could persist and strengthen as positive feedback loops form. Labor Markets and Low Valuations Underpin 2026 Russell 2000 Outlook Labor markets and consumer health are critical to the Russell 2000's outlook. Labor markets softened in 2025 from pandemic-era extremes but have remained healthy overall. Measures such as wages, jobless claims, and job creation are at historically healthy levels and are notably stronger than before the COVID-19 pandemic. In 2025, weak growth and underperformance depressed investor appetite for many non-tech names. That year's price action left many non-tech firms trading at the lower end of their valuation ranges, making them attractive candidates for 2026 — especially versus expensive mega-cap tech stocks. Investors face a two-fold opportunity: improving earnings growth and the potential for a bullish revaluation to drive share-price gains this year. Top Sectors for Small-Cap Growth in 2026 While some mega-cap tech names look extended, technology could still be a strong play within the small-cap sector in 2026. Accelerating digitization, cloud adoption, and the data-center buildout are supporting adjacent industries that provide critical AI infrastructure. Industrials and infrastructure-related companies also stand to benefit from lower interest rates, regulatory loosening, and resilient consumer spending. Demand for office space may rise as the economy expands. Consensus forecasts for the Russell 2000 range from about 15% to 20%, with some projections as high as 30%, versus roughly 15% for the S&P 500. However, investors should be cautious: the small-cap group has historically included many underperforming names. For a deeper, stock-by-stock look at potential small-cap winners, see MarketBeat's analysis of five small-cap names setting up for outsized moves and the corresponding buy/sell/hold takeaways. As always, investors should conduct their own research and consider factors such as growth estimates, analyst revisions, sentiment, and profitability. Companies that are profitable today or transitioning to profitability are likely to perform best, while pre-profit firms may remain highly volatile.
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