The Russell 2000 small-cap index is expected to have a better 2025 than the S&P 500, its large-cap counterpart, according to an analyst at the investment bank Piper Sandler. Such an outperformance usually takes place in the third year of a bull market, which will come in 2025.
Details
The Russell 2000 is set to outpace the S&P 500 next year and could reach new highs, says Piper Sandler’s chief market technician and chart analyst Craig Johnson, as quoted by CNBC. Johnson explains that 2025 will mark the third year of the bull market, and historical data suggests that that is when the S&P 500 grows an average of 5.2% versus double-digit returns for small-cap stocks.
“We see compelling technical evidence suggesting that this bull market has room to continue thriving on skepticism and expanding further ‘down-cap’ throughout the upcoming year,” Johnson said.
Context
Johnson shared his forecast in a note following the stock market rally on Wednesday, December 11, CNBC reports. Investors responded positively to the November CPI print, which was in line analysts’ expectations. The Nasdaq Composite surged 1.8% on Wednesday, surpassing 20,000 points to hit a new high. Meanwhile, the S&P 500 gained 0.8% and the Russell 2000 0.5%. Since the beginning of the year, the S&P 500 has advanced more than 28%, outperforming the approximately 19% gain of the Russell 2000.
This year, the small-cap index has seen two big jumps: in July, when capital began rotating out of big tech stocks amid weak earnings reports, and in November, following Donald Trump’s victory in the U.S. presidential election. Markets believe the deregulation promised by Trump bodes particularly well for small businesses, CNBC notes. Smaller companies may also benefit if Trump slaps even stiffer tariffs on Chinese imports. On November 25 — just about two weeks after the election — the Russell 2000 broke its previous all-time high, set in November 2021.
CNBC points out that Piper Sandler is not alone in eyeing outperformance by small caps in the near term. Jefferies is of a similar view, and Fundstrat strategist Tom Lee argued shortly after the election that small caps might outperform large caps by 100% over the next couple of years thanks to Trump policies. On Wednesday, Lee laid out a luke-warm outlook for the S&P 500 in 2025. Though he is typically one of the market’s most optimistic voices, this time he said he expects the index to rise in the first half of the year before declining in the second half to end 2025 at 6,600 points.
