Russell 2000 Breaks Out: Why History Says Stocks Could Soar From Here

Over much of the past three years, small-cap stocks have been the waif of Wall Street: the most neglected corner of the market, untouchable to most.

Coming out of the COVID-19 crash, the Russell 2000 was a rocket ship. Between early 2020 and late 2021, the index soared nearly 150% as traders piled into every speculative growth name they could find.

But then the inflation hammer dropped. Sticky consumer prices forced the Federal Reserve into one of the most aggressive tightening cycles in history. That put small caps – the most economically sensitive and debt-reliant companies in the market – squarely in the danger zone.

Throughout 2022, those stocks were crushed. Even in 2023 and ’24, while the S&P 500 and Nasdaq marched to new highs on AI euphoria, small caps languished. They remained pinned by higher rates – then were punished further by tariffs here in 2025. 

All told, the Russell 2000 spent nearly four years stuck in the mud.

But this week, that changed.

The index surged more than 2.5% to 2,468, eclipsing its record high of 2,443 from November 2021. Powered by a combination of rate cuts, tame inflation, fading tariff threats, and the prospect of economic deregulation, small caps finally hit a new record.

For the first time in years, small caps have joined the rally.

And it could be the single most bullish signal we’ve seen in ages…

The Russell 2000’s Breakout Signal – and What History Tells Us Next

This is a big deal for everyone invested in stocks.

Small caps are considered the riskiest corner of the equity market. When investors are feeling nervous, they avoid them. When they feel confident about the economy and the future, they pile in.

So, small-cap breakouts act like a sentiment thermometer. If small caps are running, it usually means risk appetite is high, credit fears are low, and growth expectations are strong. 

That bullish backdrop tends to lift the entire stock market.

We’ve analyzed the market’s historical data, going back to 1980, and looked at every instance when the Russell 2000 hit a new all-time high for the first time in over a year.

There were 11 such occasions.

Here’s what happened next:

• In 10 of those 11 instances, the S&P 500 was higher one year later.
• The average return? About 15%.

The historical data overwhelmingly confirms that when small caps finally break out, the whole market tends to rally hard over the next 12 months.

And this week, the Russell 2000 broke out.

That means the clock just started on what should be another strong year for stocks – especially for one sector in particular…