Russell 2000 notches best first-half performance in 35 years

Key Facts

1The Russell 2000 Index surged more than 21% year-to-date, on track for its best first-half performance since 1991.

In a sign that equity gains are broadening beyond mega-caps, the Russell 2000 Index has surged over 21% year-to-date, on track for its best first-half performance since 1991, according to a CNBC report. The rally reflects a rotation into smaller companies with lower valuations and higher sensitivity to interest-rate expectations.

The small-cap outperformance comes as large-cap benchmarks such as the S&P 500 posted more modest returns, suggesting a valuation catch-up trade. Alger fund manager Amy Zhang attributes the strength to improving small-cap earnings fundamentals and optimism about potential Fed rate cuts later this year, though uncertainty around inflation persists.

Traders are watching upcoming economic data—including personal spending and the recent Super Core PCE readings—along with the Fed bank stress test results for clues on the sustainability of the rally. Any signs of economic softening could reinforce rate-cut bets, further benefiting small-cap stocks that are highly sensitive to borrowing costs.