Small-cap investing used to come with a caveat. Smaller companies were cheaper, scrappier, and more leveraged. They came with higher risks, but potentially higher rewards for investors who went down the rabbit hole and put in the work.
For those who hunted a discounted ETF deal, investing in smaller caps typically meant buying the Russell 2000 when sentiment was poor, waiting for the cycle to turn and letting mean reversion do the rest.
However, in 2026 small caps are no longer the bargain bin of U.S. equities. In fact, by some measures they’re the priciest corner of the market. An increasing number of investors are paying a premium for a collection of companies with weaker margins, heavier debt loads and a surprisingly large population that doesn’t make money at all.
The Most Expensive Earnings
The numbers are hard to square. Isabelnet’s post on X noted how Goldman Sachs’ data puts Russell 2000 at 26 times forward earnings, compared with about 24 times for the Nasdaq 100 and 20 times for the S&P 500.
