Small-Cap Value Is Rallying, But Valuations Still Look Discounted

Jeremy Javidi and William Lamontagne argue that improving earnings, attractive valuations and AI-driven productivity gains are creating a stronger backdrop for U.S. small-cap value equities.

• The Russell 2000 Value gained nearly 23% in H1 2026, yet trades at roughly 11.8x forward earnings, versus a historical range of 14–16x outside recessions.

• Small-cap earnings growth is expected to outpace large caps in 2026 and 2027, supported by improving U.S. manufacturing and high domestic revenue exposure.

• AI could narrow traditional scale advantages by giving smaller businesses access to productivity-enhancing capabilities previously reserved for larger firms.

Read the full analysis for the case behind a potential small-cap rerating.