Going Small: Small-Cap Stocks Outperform as Major Indexes End the Week Lower
U.S. stock markets ended the week mostly in negative territory, as early fourth-quarter earnings failed to offset broader market caution. While large-cap indexes struggled, small-cap stocks stood out, extending a powerful rally that reflects growing confidence in the U.S. economic outlook.
The Dow Jones Industrial Average slipped 83 points on Friday and finished the week down 0.3%. The $S&P 500(.SPX)$ and Nasdaq Composite ended the week lower by 0.4% and 0.7%, respectively. In contrast, the Russell 2000 surged 2% for the week, closing at a record high.
IWM
Small Caps Take the Lead
Small Caps
The standout theme of the week was the continued rotation into small-cap stocks. Investors have increasingly moved away from expensive large-cap names, favoring domestically focused companies that may benefit more directly from resilient U.S. growth.
The strength of the move has been notable. The Russell 2000 outperformed the S&P 500 for an 11th consecutive session, marking its longest streak of relative outperformance since June 2008, according to market data.
Strategists view the rally as a positive macro signal. Small-cap companies generate the majority of their revenue in the United States, meaning gains in the Russell 2000 often reflect optimism about domestic economic momentum rather than global growth.
Earnings Season: A Pause, Not a Pivot
While corporate earnings delivered a few bright spots, they were not enough to lift the broader market this week. Investors appear cautious as valuations remain elevated, especially among mega-cap stocks.
That said, earnings season is far from over. $Netflix(NFLX)$ will be the first major technology company to report next week, followed by $Intel(INTC)$ , with Big Tech earnings set to ramp up shortly after. Markets are also looking ahead to the Federal Reserve’s policy meeting on January 27–28, which could reshape expectations around interest rates.
Weekly Market Snapshot
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Top performer: $SUPER MICRO COMPUTER INC(SMCI)$ (+10.9%)
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Biggest decliner: $Constellation Energy Corp(CEG)$ (-9.8%)
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Best sector: Real Estate (+1.2%)
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Worst sector: Healthcare (-0.8%)
What to Watch Next Week
The coming week will be packed with market-moving events:
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Earnings from Netflix, $United Airlines(UAL)$ , Charles Schwab, Johnson & Johnson, Intel, GE Aerospace, and Procter & Gamble
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The World Economic Forum in Davos, with global leaders, including Trump, in attendance.
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Key economic data, including the PCE inflation index, final Q3 GDP, and Manufacturing and Services PMIs
Bottom Line: Rotation Signals Confidence in the U.S. Economy
Despite weakness in major indexes, the sustained strength in small-cap stocks sends an encouraging message. Investors are increasingly positioning for continued U.S. economic resilience, suggesting that while large-cap leadership may be pausing, risk appetite is far from disappearing…
[Salute]
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