Stock prices soared and bond yields eased as Federal Reserve Chair Jay Powell delivered a less-hawkish post-meeting press conference last week. New all-time highs ensued, pointing to the likelihood of further advances not only through year-end but also into the early part of 2026, writes Sam Stovall, chief investment strategist at CFRA Research.
Powell’s comments on inflation expectations and the employment environment, as well as his inferences toward future rate cuts, lifted the lid of uncertainty on stocks in general – and for mid- and small-cap benchmarks in particular.
Rotation following the FOMC meeting gave investors a quick glimpse into which sizes, styles, and sectors could continue to benefit from near-term buoyancy. Despite the pop in prices, the S&P MidCap 400 and SmallCap 600 Indices continue to trade at relative P/E discounts to their 20-year averages of 30% and 35%, respectively.
The S&P Value Index remains 8% below its long-term average versus the S&P 500 Index (^SPX). What’s more, rotation into the non-tech cyclicals signals encouraging economic expansion expectations. Indeed, we see US real GDP growing by 2.5% in 2026, following the anticipated 2% advance in 2025, aided by a 4.1% rise in retail sales and a decline in Core PCE to 2.4%.
From a technical perspective, conditions also look favorable for a sustained small-cap rally, according to a recent report by Lowry Research, CFRA’s technical analysis arm. “With the operating companies only (OCO) small-cap advance-decline line recording fresh, all-time highs, concurrent with the new all-time high in the Russell 2000 Index, we believe smaller stocks should be on investors’ radar screens for prospecting opportunities.”
