Small Caps Reawaken as Manufacturing and AI Drive Broader Markets

Nuveen argues U.S. small-cap equities may be entering a stronger phase, supported by recovering manufacturing activity, attractive valuations, and a broadening AI-driven investment cycle. 

• The Russell 2000 has rebounded 14% since March and now leads the broader equity recovery.
• U.S. manufacturing PMIs moved back into expansion territory, historically a supportive backdrop for small businesses and cyclicals.
• The Russell 2000 trades at 16.9x forward earnings, well below the 21.3x multiple for large caps.
• Small caps may prove relatively insulated from geopolitical disruption, with only 25% of firms generating most revenues abroad versus 37% for the S&P 500.

The market narrative may still revolve around mega-cap AI. But Nuveen’s argument is that the next leg higher could come from the parts of the market investors largely ignored during the first phase of the rally.