Wall Street clocks in a rally for second day across tech stocks, small caps and long-term Treasurys

By Isabel Wang

Small-cap stocks have outperformed their larger peers every trading day so far in 2026

Small-cap stocks have kept dancing in 2026, outperforming the S&P 500 every day this year, so far.

Wall Street threw a nearly everything rally on Thursday, with technology stocks and small caps advancing again as longer-term Treasurys eased.

The two-day surge in equities helped recover most of the stock market's sharp losses on Tuesday as tensions between the U.S. and its European allies eased and upbeat economic data sparked a broad-based bounce.

The Dow Jones Industrial Average DJIA rose over 300 points, or 0.6%, to end at 49,384 on Thursday, while the S&P 500 SPX and the Nasdaq COMP were up 0.6% and 0.9%, respectively. The small-cap Russell 2000 RUT advanced 0.8%, scoring its eighth record closing high of 2026, according to FactSet data.

David Wagner, portfolio manager at Aptus Capital Advisors, attributed news around Greenland to this week's wild swings on Wall Street, but said the broader stock market remains "healthy." Previously lagging sectors, such as small caps and value stocks VOOV, climbed alongside megacap tech leaders on Thursday.

See: Trump's tariff reversal on Greenland sparked a market rally - but the violent swings in stocks is a warning

Thursday's rally came a day after President Donald Trump said he will not be imposing tariffs against European countries and outlined a "framework of a future deal" regarding Greenland, a territory of Denmark that Trump wants to acquire.

Stocks also got a lift from solid economic data on Thursday morning that showed the U.S. economy is still growing, and consumer spending remains strong despite inflation pressures. Gross domestic product, the official scorecard of the economy, grew at a sharp 4.4% annual pace in the third quarter of 2025. It was the strongest quarter of growth in two years.

The Fed's preferred inflation gauge, known as the personal consumption expenditures price index, rose to a yearly rate of 2.8% in November, the Bureau of Economic Analysis said Thursday. That was up from 2.7% in October. Also, initial jobless claims remained low in the most recent week, showing signs of more stability in the labor market.

See: The state of the U.S. economy: strong growth, low layoffs and lingering inflation

The back-to-back rally in stocks handed the S&P 500 and Nasdaq their best two-day showings since at least Dec. 19, according to Dow Jones Market Data.

Small-cap stocks outperform

The underlying market rotation has been most evident in the small-cap universe, where companies with market caps generally below $2 billion have been delivering some of the stock market's strongest gains in the new year.

Small-cap stocks have been undefeated in terms of outperforming the S&P 500 each day of 2026. The Russell 2000 on Thursday beat the large-cap benchmark index for the 14th day in a row, booking its longest streak of outperformance since 1996, when it outperformed for 16 consecutive trading days, according to Dow Jones Market Data.

"That's an impressive start," said Adam Turnquist, chief technical strategist at LPL Financial. But what's most surprising is that the small-cap rally has been happening at the same time rates have moved higher in January.

Small-cap companies tend to have weaker balance sheets, higher debt loads and can become more vulnerable to defaults than major corporations if the economy sputters.

Before easing back to 4.25%, the 10-year Treasury yield BX:TMUBMUSD10Y this week briefly hit 4.3% and moved above its 200-day moving average. That's a technical signal of potential further upward pressure on rates, which could lift borrowing costs for households, companies and the U.S. government.

Yet with the 10-year yield up nearly 10 basis points since the start of 2026, it could be viewed as a sign of stronger economic growth, rather than heightened fiscal concerns, Wagner said Thursday.

"But on the other side of the equation, these higher rates are creating some skepticism that they could lead to lower valuations for equities, so the market is trying to tread lightly due to this push-and-pull between higher rates and high valuations of stocks," he added.

Still, the economy has been looking "good enough," Turnquist said of the small-cap rally.

"There's no better asset class to own when growth is rising than small caps," Wagner said, noting they can offer exposure to the entire U.S. economy - not just to the "hyperscaler side of things."

Joy Wiltermuth contributed

-Isabel Wang

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01-22-26 1802ET