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Exclusive News Small Caps Break Out! Russell 2000 Poised for 40% GainWritten by Thomas Hughes. Date Posted: 1/16/2026. 
At a Glance - 2026 trends point to an acceleration of small-cap gains as tailwinds turn into positive feedback loops.
- The Russell 2000 is well-positioned in early January and could rise 45% within quarters.
- Stock selection is critical as many small-cap names will struggle with competition and execution.
While the S&P 500, Dow, and Nasdaq started the year mixed, the Russell 2000 (INDEXRUSSELL: RUT) pushed to a new high and extended gains the following week. 
A widely followed Wall Street analyst is highlighting AES Corp (AES) as a stock to watch right now, based on signals from his proprietary Power Gauge system. The model tracks factors like momentum, financial strength, and institutional activity across thousands of U.S. stocks.
He breaks down the full reasoning in a short briefing, including why AES is showing unusual strength at this stage of the market. See the full analysis here That breakout is a bullish technical signal across multiple time frames. Based on prior move sizes, this rally could advance roughly 750 points on the low end and, in a stronger scenario, gain up to 45% from the breakout point. A 750-point rise would put the Russell 2000 around 3,250, while a 45% advance would approach 3,650. Here's a look at what's driving the move. Market Rally Broadens as Economic Strength Drives Upside Several factors converged in early 2026, suggesting a cyclical rally is underway. Profitability, economic momentum and relative valuations are driving a catch-up trade among the non-tech small-cap stocks that make up the Russell 2000 Index. Moderating interest rates and inflation, along with operational improvements and healthy consumer activity, are likely to accelerate growth in many non-tech names through 2026. Meanwhile, the Atlanta Fed's GDPNow tool forecasts Q4 GDP growth at 5.3%, indicating momentum picked up into the end of 2025. Early signs — including anecdotal evidence in JPMorgan's (NYSE: JPM) January earnings release — suggest these tailwinds could persist in the months ahead, potentially strengthening as positive feedback loops form. Labor Markets and Low Valuations Underpin 2026 Russell 2000 Outlook Labor market conditions and consumer health are central to the Russell 2000 outlook. Labor markets softened in 2025 from their COVID-era peaks but have remained broadly healthy. Employment metrics — including wages, jobless claims and job creation — are at historically healthy levels and are generally stronger than pre-pandemic norms. Weak growth and underperformance in 2025 reduced investor appetite for many non-tech names, leaving them trading at the lower end of their valuation ranges. That makes them relatively attractive for 2026 compared with expensive mega-cap tech. Investors may have a two-fold opportunity: improving earnings growth and a potential bullish revaluation that could lift share prices this year. Top Sectors for Small-Cap Growth in 2026 While some mega-cap tech names look overextended, technology could still be a winner in the small-cap sector in 2026. Accelerating digitization, cloud adoption and the data-center boom are spilling over into adjacent industries that support the construction and operation of critical AI infrastructure. Industrials and infrastructure-related companies are also well positioned, supported by lower rates, regulatory easing and resilient consumer spending. Demand for office space may rise as economic expansion gains traction. Forecasts for the Russell 2000 generally range from 15% to 20%, with some projections as high as 30% — versus roughly 15% for the S&P 500. Investors should remain cautious, however, since the index has historically included many underperforming names. For a closer, stock-by-stock look at potential small-cap upside, see MarketBeat's analysis of five small-cap names setting up for outsized moves and the corresponding buy/sell/hold takeaways. As always, investors should conduct their own research, considering factors such as growth estimates, analyst revisions, market sentiment and profitability. Companies that are profitable today or are clearly pivoting to profitability are likelier to perform best, while pre-profit firms may experience higher volatility.
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