Small-cap stocks in the US are expected to outperform the market, with faster earnings growth and more attractive valuations.

For years, small-cap stocks have struggled to live up to their reputation of having high beta values, especially in outperforming the broader market during bull markets. Analysts believe that this situation may be changing, as small companies are expected to achieve faster profit growth than their larger counterparts. Relatively cheap valuations could also trigger a wave of corporate mergers and acquisitions, which would boost the sector. Scotiabank strategist Hugo Ste-Marie wrote that profits for companies in the S&P 600 Small-Cap Index are expected to grow by 14% in the third quarter. This would surpass the nearly 12% growth rate of the S&P 500 index. Acuitas Investments Chief Investment Officer Chris Tessin believes that further interest rate cuts would boost profits for small companies that often carry higher debt burdens. For investors seeking excess returns in 2026, the small-cap sector may be poised to deliver.