Investors prefer growth-oriented large-cap stocks over small-cap and value stocks due to outperformance

Investors are favoring large-cap and growth-oriented stocks over small-cap and value stocks due to their outperformance in recent years, such as during the pandemic and trade conflicts of 2025. The gap between US large and small caps has widened, indicating a structural shift favoring large caps and growth.

Big Tech’s steady rise in valuations has contributed to the stock market’s behavior. While a broadening stock market rally hasn’t materialized as expected for small-cap stocks, the excitement around AI has benefited various players beyond the tech giants. AI chip and data center stocks, excluding Nvidia, have seen significant gains in the S&P 500.

Despite underperformance, the Russell 2000 has lagged behind the broader market this year, with a 1% loss compared to the S&P 500’s 6% gain. Market sentiment continues to favor Big Tech amid trade uncertainty, making it challenging for small-cap stocks to gain traction.

Read more at Yahoo Finance: The ‘new normal’ of growth stock dominance