Weekly Notes from Tim
By Tim Holland, CFA, Chief Investment Officer
- I had a boss, an equity portfolio manager, who believed if a market performance pattern was in place on a trailing twelve months basis that a trend was firmly in place. Now, this was just one person’s opinion, and it wasn’t really rooted in fact, more experience and intuition, but this individual was, I think, a brilliant investor who, over a very long career, got more things right about the market than wrong. And the idea of twelve months a trend makes is the focus of this week’s note, specifically as it concerns the relative performance of US small cap stocks to US large cap stocks over the past year.
- Before taking that longer look back, it is worth pointing out that US small cap stocks, as measured by the Russell 2000, are off to a tremendous start in 2026, up 7.8% year-to-date, easily outdistancing every major index our investment team tracks. As we have written about of late, we are bullish on and overweight US small cap stocks across our proprietary portfolios. As to what underpins our optimistic take on the asset class, we would point to attractive valuation, improving earnings growth, lower borrowing costs and a more benign regulatory environment.
- And as it concerns the relative performance of small cap stocks to large cap stocks over the past twelve months, the former is now outdistancing the latter, with the Russell 2000 up 18.2% and the S&P 500 up 16.7% through January 15th (see chart). Whether that trend – if that is what it is – will continue, only time will tell. But after years of underperforming their large cap peers, small cap stocks are catching a big bid and giving owners of diversified portfolios another meaningful performance boost.
Source: FactSet January 15, 2026
Looking Back, Looking Ahead
By Ben Vaske, BFA, Manager, Investment Strategy
Last Week
Global equities extended early-year momentum, gaining roughly 0.5%, with leadership again coming from international markets. Non-U.S. equities continue to outperform U.S. large caps early in 2026, reinforcing the benefits of global diversification after years of narrow leadership. U.S. equity performance was mixed on the week. Small and mid-cap stocks led for the week, while large-cap benchmarks were modestly negative. Small caps are now leading asset class returns year to date. Interest rates rose modestly last week, though mortgage rates moved lower. Diversifying assets were largely flat, with core bonds, high yield, and alternatives posting minimal movement.
Inflation data came in better than expected. CPI rose 0.3% in December and is now up 2.7% year over year. PPI also matched expectations, rising 0.2% in November. Retail sales surprised to the upside, increasing 0.6% in November, reflecting continued consumer strength.
Earnings season is off to strong start, while only about 7% of companies have reported, 79% have delivered positive earnings surprises, keeping fundamentals front and center.
This Week
This week, investors will focus on a revision to GDP and the release of the Fed’s preferred inflation gauge, PCE, to confirm whether growth is slowing modestly while remaining healthy. Additionally, there are multiple earnings reports set to release this week with Netflix, Intel, and Procter & Gamble, among many others, reporting.
Federal Reserve rate cut expectations were unchanged after CPI was released last week. Markets expect a 96% probability that rates remain unchanged at the January 28 meeting. While two cuts in 2026 remain the base case, outcomes remain widely dispersed as investors await clarity on Fed leadership and the path of rates.
Atlanta Fed GDPNow rose again on its last reading, currently estimating Q4 GDP at 5.3%, driven largely by net exports, reinforcing the narrative of economic resilience rather than imminent slowdown.
We hope you have a great week. If there’s anything we can do to help you, please feel free to reach out to ben.vaske@orion.com or opsresearch@orion.com.