View from the Observation Deck
Today’s chart highlights changes in the share of small- and mid-sized (“SMID”) companies that make up the broader S&P 1500 Index over time. The chart spans the more than 31 years of monthly data from January 1995 through September 2026. It also includes observations for October 23, 2026. For reference, the S&P 1500 Index is an aggregate of the S&P 500, S&P MidCap 400, and S&P SmallCap 600 Indices. This installment serves as an update to our previous discussion on this topic in June 2026.
SMID companies’ share of the broader S&P 1500 Index’s weight has been slowly eroding, with the trend accelerating over the past decade.
As we see it, several major catalysts lured investors away from SMID cap stocks in recent years. Interest rate policy likely played a role, with higher capital costs weighing more heavily on smaller companies’ profitability. We also see geopolitical concerns and fallout from COVID lockdowns contributing to this trend, especially given perceived stability offered by larger, established companies. Finally, capital requirements of AI hyperscalers likely coaxed significant investment away from small- and mid-sized companies over the past several years.
SMID cap stocks accounted for 10.8% of the S&P 1500 Index, on average, over the period captured in today’s chart.
In September 2026, SMID cap stocks represented just 7.2% of the S&P 1500 Index, well below average and down from 7.9% in February 2026 (this year’s highest level).Investors remain heavily allocated to the largest stocks within the S&P 500 Index.Data from FactSet shows that the top ten companies in the S&P 500 Index accounted for 38.0% of the Index on October 23, 2026, with just 34% of S&P 500 Index constituents outperforming the Index year-to-date (YTD) through September 2026 (most recent available data). While this metric has improved in recent years, it remains well below its 31-year average of 46.8%. For comparison, the share of S&P 500 Index constituents outperforming the broader Index was just 27% (lowest on record) in 2023, 28% in 2024, and 31% in 2025, according to data from Capital IQ.
Despite this narrow breadth, the S&P 500 Index has generated outsized total returns of 26.3%, 25.0%, and 17.9%, respectively, in 2023, 2024, and 2025.
For context, the last time breadth was this narrow was in 1999 (31%) and 2020 (33%), when the Index’s total return was 21.0% and 18.4%, respectively.
This year’s total returns have also been compelling, with the Index increasing 12.4% YTD through October 23, 2026.
Comparative total returns for the S&P MidCap 400 and S&P SmallCap 600 Indices are below:
S&P MidCap 400 Index
2023: 16.4%2024: 13.9%2025: 7.5%2026 (YTD): 10.6%
S&P SmallCap 600 Index
2023: 15.9%2024: 8.6%2025: 6.0%2026 (YTD): 16.1%
Takeaway: As noted above, the percentage of small- and mid-sized companies that make up the broader S&P 1500 Index has declined in recent years. We believe catalysts for this trend include advancements in AI, geopolitical unrest, and increasing capital costs, which influenced investors to take stakes in larger, more established companies. The resulting market concentration is notable, with SMID cap stocks’ share of the S&P 1500 Index plummeting to a 31-year low of 7.2% in September 2026. The S&P 500 Index is also highly concentrated, with the top ten companies accounting for 38.0% of the Index’s weight on October 23, 2026. From a performance perspective, each of the indices covered in today’s analysis remains positive YTD, supported by strong fundamentals and persistent earnings growth. Even so, as noted in a recent discussion (SMID Earnings Persistence), SMID cap company earnings and valuations appear compelling relative to their large cap counterparts. While the continued threat of rising interest rates and higher capital costs remains a concern, we cannot know for certain what the Federal Reserve will decide in the coming months and the data is changing quickly. Tellingly, on October 23, the federal funds target rate futures market forecasted a 9.4% chance of an interest rate hike at the Federal Reserve’s October meeting this week, down from 37.1% on September 30, 2026. We plan to update this topic as new developments occur.
This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 1500 Index is a broad-based capitalization-weighted index of 1500 U.S. companies and is comprised of the S&P 500, S&P 400, and S&P 600 Indices. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index which measures the performance of the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index is a capitalization-weighted index that measures the performance of selected U.S. stocks with a small market capitalization.
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