Small caps are quietly outperforming the S&P 500 and 'Magnificent 7' this year: AlphaCheck

Small caps are quietly outperforming the S&P 500 and 'Magnificent 7' this year: AlphaCheck Grace O'Donnell · Editor, Special Projects Thu, August 6, 2026 at 4:39 PM GMT+2 3 min read ^RUT ^GSPC COP ^IXIC CL=F Good morning. Stocks were little changed on Thursday morning in the wait for a Middle East deal, though a decline in software stocks dragged on the Nasdaq Composite ( ^IXIC ) in the first half-hour of trading. Oil prices ( CL=F , BZ=F ) are up, and so is SpaceX ( SPCX ) stock as retail investors buy the dip .

But first, a check of the markets in early trading, as of 10:20 a. m. ET, based on a heat map powered by Yahoo Finance AlphaSpace data .

The tech sector ( XLK ) was under pressure in early trading but flipped into the green. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell over 2%, offset by a 2% gain in the iShares Semiconductor ETF ( SOXX ). Energy stocks ( XLE ) also rose, mirroring a 1% rise in oil and a lift in ConocoPhillips ( COP ) shares after the company reported earnings.

Here are the top stocks Yahoo Finance readers viewed this morning: SpaceX ( SPCX ), Micron ( MU ), Intel ( INTC ), SK Hynix ( SKHY ), Oracle ( ORCL ), IBM ( IBM ), and CrowdStrike ( CRWD ). 1 trend we're watching: Small caps are quietly outperforming. Will it last?

While the S&P 500 ( ^GSPC ) and Dow Jones Industrial Average ( ^DJI ) reached record highs this week, another group of stocks in an overlooked part of the market also quietly showed its strength. The Russell 2000 ( ^RUT ) index touched a record high on Wednesday, surpassing the 3,000 level for the first time. The small-cap index's 20.

7% return has outperformed the S&P 500's 12. 8% gain this year, and it has also outperformed the "Magnificent Seven" stocks year to date, as small caps benefited from profit-taking in the larger, growthier parts of the market. As concerns swirl about a top-heavy market dominated by AI-related names, small caps may be seen as an attractive entry point for exposure to the AI boom, as the iShares Russell 2000 ETF ( IWM ) has a price-to-earnings multiple of 18x, compared to the SPDR S&P 500 ETF's ( SPY ) 27x, according to AlphaSpace data.

In a note last week, RBC Capital Markets' Lori Calvasina laid out the case for small-cap leadership to grind higher: below-average valuations, a stronger bottom-up earnings growth outlook, and several economic tailwinds, such as a reacceleration in job growth and manufacturing activity. Still, there are plenty of risks, and Calvasina noted it wouldn't be surprising to see small caps take a pause. The trade has been choppy, with the S&P 500 again taking the lead over the Russell in the past month amid market rotations.

Tech valuations have also come down, giving investors a reason to rethink large caps. Story Continues Small caps' greater exposure to interest rates and sensitivity to may also restrain the trade, particularly if the Iran war begins to weigh on growth, Calvasina said. "In recent years, pricing in hikes or taking out cuts tends to trip up the Small Cap outperformance trade in the short term," Calvasina wrote.

"Note, we are starting to pay more attention to the M&A backdrop where a pick-up in activity could generate some excitement in the Small Cap arena.