Small Caps Stage Historic Rally
The Russell 2000 is making headlines this week with an extraordinary run that hasn't been seen in nearly two decades. The small-cap index is on track to outperform the S&P 500 for an 11th consecutive session, marking the longest such streak since a 13-day run recorded in June 2008.
Year-to-date, the Russell 2000 has surged more than 8%, dramatically outpacing the S&P 500's modest 1.5% gain. This divergence signals a potential rotation as investors seek opportunities beyond the mega-cap technology stocks that dominated 2025.
TSMC Delivers Blockbuster Results
Taiwan Semiconductor Manufacturing Company, the world's largest contract chipmaker, reported a stunning 35% jump in fourth-quarter profit, exceeding analyst expectations and reinforcing confidence in the artificial intelligence buildout.
The company announced plans to boost capital spending in 2026 to between $52 billion and $56 billion—a significant increase that signals management's conviction in sustained demand from major customers including Nvidia and Apple.
TSMC shares jumped more than 4% on the news, lifting the broader semiconductor sector. The VanEck Semiconductor ETF (SMH) climbed 2%, with Nvidia adding another 2% to its gains.
Market Volatility Persists
Despite the sector-specific rallies, broader market indices ended the week relatively flat amid ongoing uncertainty. The S&P 500 slipped 0.06% on Friday to close at 6,940.01, while the Nasdaq Composite edged down 0.06% to 23,515.39. The Dow Jones Industrial Average fell 83 points to finish at 49,359.33.
Traders continue to weigh commentary from the Trump administration on Federal Reserve policy and geopolitical developments, including ongoing discussions regarding Greenland.
Old Economy Leads the Dow
In a notable shift from the technology-dominated gains of recent years, traditional industrial stocks have emerged as top performers in the Dow Jones Industrial Average for 2026:
- Boeing leads with gains exceeding 12%
- Caterpillar follows with nearly 12% gains
- Sherwin-Williams rounds out the top three with approximately 10% gains
Fed Chair Speculation Intensifies
Markets are also pricing in potential changes at the Federal Reserve. Former Fed Governor Kevin Warsh has emerged as the frontrunner for the central bank chair position, according to prediction markets. President Trump indicated Friday that he prefers to keep Kevin Hassett in his role as National Economic Council Director, seemingly boosting Warsh's odds.
Looking Ahead
As earnings season continues, investors will be watching for further signals from the technology sector and monitoring how small-cap momentum evolves. The historic outperformance of smaller companies could indicate a broadening market rally—or potentially reflect heightened risk appetite that warrants caution.
The week ahead brings more corporate earnings reports and potential updates on monetary policy expectations as markets digest the implications of recent economic data and political developments.