Argus

•

Mar 31, 2026

Market Outlook

Bullish

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Short

Summary

Despite bursts of outperformance, small- and mid-cap stocks (SMID) have underperformed large-caps year to date -- as they have over the past six years. But they may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the trade and tariff debate, fallout from unrest in the Middle East, the Russian invasion of Ukraine, issues in China, or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps, with the P/E ratio on the Russell 2000 SmallCap Index at 20, compared to a trailing P/E of 29 for the S&P 500. Finally, there are long stretches in the record books when SMID stocks have outperformed large-caps. For example, from 2003-2021, the Russell 2000 climbed 450%, compared to an advance of 330% for the S&P 500. That said, SMID stocks can be risky. The standard deviation for monthly returns was 5.7% for SMID stocks over our 2003-2021 test period, versus 4.3% for large-caps.

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