• Forecasters are growing bullish on small-cap stocks, one of the weakest areas of the market in 2025.

• The Russell 2000 is down just under 1% this year, underperforming the S&P 500.

• There are a handful of reasons market pros think bigger returns for small caps are coming.

Stock forecasters can’t stop talking about the market’s smallest and least impressive stocks.

They’re referring to the small-cap sector, an area of the stock market that strategists have been bullish on, despite underperforming the overall market in recent years.

The Russell 2000, which slipped into a bear market over the first half of the year, has recouped most of its losses in recent months. But the index of small-cap US firms is still down about 1% year-to-date, lagging the S&P 500‘s 5% gain.

On a five-year horizon, the Russell 2000 has yielded a 53% return — underwhelming compared to the S&P 500’s 98% climb.

But there are a few reasons some forecasters remain bullish on the sector. Here’s what strategists are saying.

There’s reason to believe that more small, private companies are gearing up to go public in the near term, according to analysts at Janus Henderson.

Small private firms have typically relied on private equity investors to get fresh capital, but many private loans are structured over a 5- to 7-year time horizon, analysts said, and companies will likely be looking for new sources of money once the debt matures.

Interest rates are also higher than they were in the past decade, which could make it more challenging to attract private investors, they added.

“That’s why going public could become a more attractive path for companies needing refinancing or private equity sponsors looking for an exit,” analysts said, pointing to the surge in IPOs over the first half of 2025 compared to the prior year. “A reopening IPO market typically benefits the entire small-cap asset class as quality companies tend to go public first and generate positive momentum across the space.”

Small-cap stocks have historically performed well after bear markets, according to an analysis from Royce Investment Partners.

The Russell 2000 fell into a bear market earlier this year, falling 21% from January to April 8, and historically, stocks in the index have seen healthy growth following a trough.

In 2020, the Russell 2000 plunged more than 30% peak-to-trough amid the broader coronavirus-fueled sell-off, but value and growth stocks in the index more than doubled in value in the year following the event, according to Francis Gannon, the co-chief investment officer at Royce.