Despite emerging geopolitical tensions, U.S. equities have staged a dramatic comeback over the past quarter, with the S&P 500® up 9% QTD through June 25, 2025, fueled by robust corporate earnings from Big Tech. Meanwhile, with the impending Russell reconstitution,1 the market’s mind has shifted toward smaller caps, which have had a more challenging time, with the S&P SmallCap 600® down 6% YTD, underperforming The 500™ by 10%. Headwinds including ongoing tariff-related uncertainty, higher Treasury yields and a weaker dollar have weighed on smaller-cap companies, which tend to be more domestically sensitive.
With the Russell reconstitution approaching, it could be an opportune time to examine the historical performance of smaller companies, which generally face different challenges than their large-cap peers. Numerous studies, most prominently by Fama and French,2 have documented the small-cap premium, or the long-term outperformance of small stocks. But not all small-cap indices are created equal. The S&P SmallCap 600 has outperformed versus the broader U.S. small-cap universe, with a cumulative excess return of over 90% versus the S&P United States SmallCap Index since December 1994 (see Exhibit 1).
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