Small/Mid Cap Strategy: Mid-year outlook: time for mid

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Small/Mid Cap Strategy: Mid-year outlook: time for mid

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Small/Mid Cap Strategy

Mid-year outlook: time for mid

Small Cap

1H: Small>mid>mega; 2H: stick with SMID but mid>small 25 June 2026

In our 2026 Year Ahead report, we expected SMID caps to outperform mega caps this Small/Mid Cap Research

year given a bigger expected 2H earnings recovery and an improving manufacturing United States

backdrop. We were most bullish on small caps given the potential for Fed cuts, the best Jill Carey Hall, CFA

expected profits growth trends, and cheaper valuations vs. mid. The Russell 2000 has Equity & Quant Strategist

been the best-performing size index in the 1H (Exhibit 1), +21% vs. Russell MidCap BofAS+1 646 855 3327

+13%, Russell 1000 (and S&P 500) +8% and Russell Top 200 (mega caps)+7%. While we jill.carey@bofa.com

still prefer SMID>mega, within SMID we expect mid to outperform small in the 2H: both Trey Brown

now trade at similar valuations (mid no longer expensive vs. small; see valuations note EquityBofAS & Quant Strategist

and Exhibit 2) and have similar expected 2H earnings accelerations, but mid caps have +1 646 855 2689

harold.brown2@bofa.com

the strongest guidance and revision trends, and small caps are most at risk from rate

hikes (more below). But we still see upside opportunities within small caps for less rate-

sensitive stocks given how concentrated Russell 2000 performance has been YTD. See

our concurrent Best SMID Cap Ideas for 2H26 report for stock ideas in small & mid.

GFC: Global financial crisis

Prefer mid>small in 2H on increased risk of Fed hikes

So far YTD, small caps have largely shrugged off Fed cuts getting priced out and a hike

getting priced in. Consensus earnings estimates have been revised up 13% YTD, helped