Remember when your little cousin suddenly got taller than you over summer break? That’s basically what happened to small-cap stocks last week, and honestly, it’s kind of hilarious.
While everyone was arguing about whether to put cranberry sauce on turkey (the correct answer is yes, obviously), the Russell 2000 – that’s the index that tracks smaller companies – quietly gained 5% in three days. Meanwhile, the big boys in the S&P 500 managed a respectable 1.6%, but let’s be real: getting schooled by the little guys has to sting a bit.
This was the biggest Thanksgiving rally since 2012, which coincidentally was also the last time I successfully made gravy without lumps. But here’s the thing – this isn’t just holiday magic. It’s what market nerds call an “early January effect,” and it’s basically small caps getting their revenge tour started early.
Why Small Caps Are Suddenly Cool Again
Think of small-cap stocks like that indie band you discovered before they got famous. They’re scrappy, they move fast, and when things go well, they can absolutely explode. The problem is, they also crash harder when times get tough – kind of like how that same indie band might play to three people and a dog on a Tuesday night.
But right now, small caps are having their moment because:
1. The short sellers went home for turkey – Seriously, trading volume dropped as pessimistic investors probably decided to focus on family drama instead of market drama.
2. Interest rate cuts are coming – When borrowing gets cheaper, smaller companies (who typically need more cash to grow) get a bigger boost than the mega-corporations that are already swimming in money.
3. The “Economic Singularity” is approaching – That’s fancy talk for “AI is about to change everything,” and smaller, nimble companies might actually adapt faster than the corporate giants still figuring out how to use ChatGPT.
2026: The Year Everything Gets Weird (In a Good Way)
Here’s where it gets interesting. All those massive infrastructure projects, data centers, and semiconductor factories that got announced over the past couple years? They’re actually going to start happening in 2026. We’re talking about potentially hitting 5% GDP growth – which in economic terms is like your favorite sports team not just winning, but absolutely demolishing the competition.
The smart money is betting that AI will stop being a buzzword and start being the thing that actually drives productivity and growth. And when that happens, the companies that can pivot quickly (hello, small caps) might just outperform the slow-moving giants.
The Bottom Line
Look, nobody has a crystal ball, and the market has a sense of humor that would make a dad joke seem sophisticated. But when small caps start flexing this early in the cycle, it usually means something bigger is brewing.
Whether you’re team small-cap or prefer the safety of blue chips, one thing’s clear: 2026 is shaping up to be the kind of year that makes finance bros actually excited about spreadsheets. And honestly? That’s either really good news or a sign we should all be worried.
Either way, pass the popcorn. This is going to be fun to watch.