Russell 2000 stocks outperform Big Tech to start the year for the first time since 2019

Russell 2000 stocks have been beating Big Tech for the entire first days of trading in 2026, and this is the first time that’s happened since 2019.

The small-cap index has now outperformed the S&P 500 and the Dow for seven straight trading days, and the last time that happened was back in January 2019.

Money has been flowing into banks, materials, and consumer product companies, the types of businesses that do better when people are working, spending, and building stuff. That’s where the bets are now.

Wall Street depends on earnings from outside tech now

The shift couldn’t have come at a weirder time. Tech is still expected to lead profit growth in the fourth quarter. Data from Bank of America says S&P 500 tech companies are set to grow earnings 20% compared to last year.

Non-tech earnings? They’re looking at a drop from 9% growth down to just 1%. That puts a lot of pressure on the other sectors to show they’re not dead weight.

Investors are watching names like Caterpillar, JPMorgan, and Procter & Gamble. These are the ones that need to prove the U.S. economy isn’t only surviving, but also pushing into real expansion. Analysts are already expecting that kind of message.

“This is the first start to the year that we’ve got broad stimulus tailwinds,” said Michael Kantrowitz, strategist at Piper Sandler. His top picks are transportation, housing, and manufacturing.

Tech still holds power but small caps pull fund flows

Bloomberg Intelligence says growth stocks are set to increase profits by three times the pace of value stocks. That’s 30% earnings growth for tech versus just 9% for value. Tech’s still the biggest slice of the growth pie, and that doesn’t change just because some people are bored of it.

But not everything outside tech is dragging. Industrials are expected to grow profits 13%. Consumer discretionary stocks are looking at 12%, and health care, materials, and staples are all projected to land just under 10%. So yeah, some of these sectors are actually showing real numbers.

And it’s not just projections. Real money is leaving tech. Last week, tech sector funds saw $900 million in outflows. At the same time, $8.3 billion went into other industries. That includes materials, health care, and industrials; sectors that are heavy in the Russell 2000.

According to Deutsche Bank, small-cap exposure just hit its highest point in nearly a year. Meanwhile, positioning in Big Tech continues to fall.

That’s not exactly a soft signal. The Fed’s easing is helping too. With rates lower, riskier parts of the market look more attractive. Add to that the growing doubt around AI’s staying power, and it makes sense that traders are backing off the megacaps and trying something new.

On the macro side, futures are softer. Dow futures dropped 63 points. S&P 500 futures were down 0.2%, and Nasdaq 100 fell 0.3%.

Traders are watching the CPI report, which is expected to show a 2.7% rise in prices over the past year. That would match the softer inflation seen in November, even with last fall’s government shutdown messing up the data.

If you're reading this, you’re already ahead. Stay there with our newsletter.