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T. Rowe Price says small- and mid-cap earnings are turning in 2026
The small-cap benchmark is up about 20% year to date versus just below 10% for large-cap indexes, and portfolio manager Jodi Love expects earnings growth to accelerate through 2026 and into 2027.
T. Rowe Price portfolio manager Jodi Love says the outlook for small- and mid-cap earnings is improving in 2026, after a multi-quarter slide in expectations for those segments. Speaking on Bloomberg's "ETF IQ," Love pointed to a shift that followed 10 straight quarters of declining earnings estimates for small- and mid-cap companies, with consensus now signaling accelerating earnings growth through the rest of 2026 and into 2027, according to Yahoo Finance.
Love said the recent rotation reflects both performance and valuation. The small-cap benchmark is up about 20% year to date, compared with a gain of just below 10% for large-cap indexes, and she cited that small and mid-cap stocks trade about 20% to 35% below large-cap benchmarks, leaving more room for gains from a lower valuation base.
Rather than concentrating on narrow mega-cap and AI leadership, Love said her T. Rowe Price Small-Mid Cap ETF (TMSL) favors "picks and shovels" companies that stand to benefit from big technology firms' capital spending. Her top overweights include industrials, financials and health care, with areas such as aerospace and defense, regional banks and biotech.
Love also described how the portfolio handles winners as they grow and how deals and IPO activity can replenish the opportunity set. She said the fund holds names that have graduated out of the Russell 2500 index, including SanDisk, Ciena and Fabrinet, and that it can use the ETF's redemption process to lock in gains, while some exits happen through acquisitions, such as Vertex Pharmaceuticals' $10 billion buyout of Crinetics Pharmaceuticals agreed on July 6. She added that small-cap IPO activity has been more active this year, with new listings, many in industrials, arriving almost every week after what she called a slow lull earlier.