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Tech Scarcity Keeps S&P 600 from Capturing AI Momentum

BY | ETF Database
8:42 am ET 10/08/26 | 15 VIEWS
According to S&P Dow Jones Indices, market breadth has declined in the U.S. in recent months. This has caused small caps to lag large caps. Small-cap stocks had another weak session on October 7. As a result, the large-cap S&P 500 (up 15.0%) was ahead of the S&P SmallCap 600 (up 14.9%) year to date for the first time in 2026. This marks a sharp reversal from late June, when the S&P 600 was ahead of the 500 by more than 15 percentage points. However, the S&P 600 declined 8% in Q3 and has lagged by a further 1% so far this month, which has wiped out that lead.Key Takeaways: After an 8% decline in the third quarter, the S&P 600 Small Cap index is trailing the S&P 500 for the first time in 2026. The small-cap index has only 13% exposure to information technology stocks. This is far less than the 40% for the large-cap index. Invesco offers small-cap sector ETFs to help investors boost their exposure in a broad portfolio. Sector Weightings Drive the DivergenceThe S&P SmallCap 600’s relative underperformance has been driven by sector weights rather than individual stock performance, according to S&P Dow Jones. Small-cap stocks have actually outperformed large caps within most sectors, including information technology (IT). However, the small-cap index has a much lower weight in the technology sector at 13% compared to the S&P 500’s 40%. As a result, the small-cap index has captured far less of the AI-driven rally that has propelled mega- and large-cap broad market indexes to new highs.Small Caps Outperforming Within Most Sectors(YTD Performance Difference: S&P SmallCap 600® Sectors Relative to S&P 500® Sectors. Source: S&P Dow Jones) Information Technology [+14%] ■■■■■■■■■■■■■■ Financials [ +8%] ■■■■■■■■ Health Care [ +7%] ■■■■■■■ Consumer Discretionary [ +6%] ■■■■■■ Materials [ +6%] ■■■■■■ Utilities [ +3%] ■■■ Real Estate [ +3%] ■■■ Consumer Staples [ +2%] ■■ Communication Services [ 0%] Industrials [ -1%] ■ Energy [ -2%] ■■Navigating Small-Cap Sectors via Targeted ETFsFor advisors and investors looking to tap into the small-cap outperformance in specific sectors without taking on broad-index weighting drags, targeted sector ETFs offer a tactical vehicle. For example: Invesco S&P SmallCap Information Technology ETF (PSCT C+): Tracks the S&P SmallCap 600® Information Technology Index. It provides targeted exposure to small-cap technology companies across software, semiconductors, and IT services. This allows investors to capture small-cap tech strength directly. Invesco S&P SmallCap Financials ETF (PSCF A-): Tracks the S&P SmallCap 600® Financials Index. The ETF offers focused exposure to small-cap banks, regional thrifts, and financial services firms that benefit from localized economic activity and lending margins. For more news, information, and analysis, visit the Innovative ETFs Content Hub. Invesco Distributors, Inc. is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Invesco Distributors, Inc., nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.

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