Small-cap stocks are poised for a significant comeback in 2026, driven by compelling valuations, anticipated Fed rate cuts, and accelerating earnings growth. The Russell 2000 trades at around 18 times earnings, while the S&P 600 is at 15.9 times trailing earnings and 15.61 times estimated forward earnings, compared to the S&P 500's 27 times earnings. By price-to-sales and price-to-book, small caps have not been this inexpensive relative to large caps since 1999. Anticipated Fed rate cuts provide tailwinds, as Merrill Lynch data shows small caps consistently outperform in the one, three, six, 12, and 24 months following cuts, a trend since 1990, with the Fed having already implemented three consecutive cuts in 2025. Bank of America forecasts small-cap earnings to grow by 17% in 2026, outpacing the 14% expected for large caps. JPMorgan's Eduardo Lecubarri calls it "the best stockpicking era we have seen in our lifetime," advocating for an overweight position in U.S. small caps.