Is the IWM ETF Still a Buy After Its Recent Run-Up?

After a beardown commencement to 2026, the iShares Russell 2000 ETF (NYSEMKT: IWM) is up 18% twelvemonth to date. That astir doubles the 10.7% instrumentality for the S&P 500. But the aboriginal momentum for tiny caps and different non-tech stocks has faded erstwhile the artificial quality (AI) commercialized returned successful afloat unit successful April.

Now investors request to measurement a affirmative outlook for economical maturation and firm earnings, but besides woody with higher inflation, an uncertain geopolitical environment, and higher-for-longer involvement rates. Which of these factors wins retired volition apt find whether tiny caps are inactive a bargain here.

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Why were tiny caps capable to run?

Toward the extremity of 2025, tiny caps were being weighed down by the unit of precocious involvement rates and the fiscal interaction of tariffs. Small companies thin to beryllium much debt-dependent than ample ones, truthful higher rates contiguous a greater comparative fiscal cost. Tariffs besides disproportionately wounded tiny caps due to the fact that they don't person the quality oregon flexibility to easy change proviso chains oregon negociate presumption arsenic ample companies do.

In February 2026, however, the Supreme Court struck down galore of the U.S. tariffs issued successful 2025 arsenic unlawful. With that large headwind eased, tiny caps present had a much optimistic outlook.

Early successful the year, markets besides anticipated that the Federal Reserve would beryllium capable to chopped rates aboriginal successful 2026. Rate cuts often supply a boost to tiny caps because, again, they tin trim indebtedness servicing costs and amended fiscal health.

Those 2 factors were a large crushed tiny caps rallied successful the archetypal quarter.

What the bull lawsuit rests connected present

Today, it looks progressively improbable that the Fed volition beryllium capable to chopped rates. The annualized ostentation complaint is approaching 4% again pursuing the months-long struggle successful the Middle East, and the Fed whitethorn really request to see hiking earlier cutting.

But the biggest catalyst for tiny caps successful the remainder of 2026 volition beryllium net growth.

A large crushed wherefore tiny caps person struggled is that net maturation has mostly stagnated. That inclination is opening to reverse. In 2026, Russell 2000 components are expected to present 19% year-over-year net growth, importantly higher than the 13% maturation complaint presently forecast for stocks successful the S&P 500.

Even aft this year's rally, the iShares Russell 2000 ETF inactive lone trades astatine a guardant price/earnings (P/E) aggregate of 17, a amended worth than the 20 times net the S&P 500 presently trades at.