The Russell 2000 has rebounded more strongly than the S&P 500 and Nasdaq in recent weeks. Small-cap stocks could continue to outperform ahead of the first quarter earnings season. Which Russell 2000 stocks are worth watching right now?
Stock markets have rebounded strongly in recent weeks. The S&P 500 and both hit record highs on Wednesday.
Over the past month, the S&P 500 has gained 4.83%, while the Nasdaq is up 7.34%.
But an American index did even better. The U.S. Small Cap 2000 Index, which tracks small companies, is up 8.40% over the past month.
The ongoing Q1 2026 earnings season could push this trend even further. Analysts expect smaller companies to grow profits by 18.4%, compared to 9.8% for S&P 500 companies.
This implies that we can expect more positive surprises in small-cap earnings than in large-cap earnings over the coming weeks.
Longer term, small caps could also benefit from a resurgence in Fed rate cut expectations, as small caps – which are generally considered more credit dependent than larger companies – are seen as more sensitive to rate forecasts.
Indeed, the war with Iran and its impact on oil prices have weighed heavily on rate cut expectations, but the latest reports suggest the conflict could soon end. This raises hopes that oil prices will return to more normal levels, which would lower inflation expectations, paving the way for further rate cuts.
Finally, US President Donald Trump’s protectionist policies also favor small caps, often focused on the US domestic market.
12 Undervalued US Small Caps Showing Upside Potential
In this context, we set out to identify the best opportunities among stocks using the Investing.com filter with the following search criteria:
Excluding Russell 2000 Nano-caps Potential greater than 40% based on Fair Value (summary of valuation models) Potential greater than 40% based on average analyst target Overall Health Score greater than 2.5/5 Growth Health Score greater than 2.5/5 Cash Flow Health Score greater than 2.5/5
This research allowed us to identify 12 opportunities:
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