Nvidia (NVDA, Financials), Apple (AAPL, Financials), and Microsoft (MSFT, Financials) now boast individual valuations exceeding $3 trillion, a level of market dominance that collectively puts the top five companies in the S&P 500 nearly 4.4 times larger than the entire Russell 2000 Index, according to a recent analysis by Jefferies.
Jefferies analysts see a robust comeback for small-cap equities despite this concentration of value in mega-cap corporations, estimating the Russell 2000 would gain 13.5% to 2,715 by the end of 2025.
For small caps—which have lagged behind big caps for eight straight years—the prediction points to a possible turning point. Jefferies projects 13% growth in the Russell 2000 in 2025, a little down from the present expectation of 16% but still ahead of forecasts for large-cap growth. The survey also observed that small-cap prices have climbed; the future price-to-earnings ratio now falls in the 95th percentile historically. Analysts said these higher values would cause near-term absolute performance to be less strong.
Jefferies pointed out that the difference in price-to-sales ratios highlights the clear discrepancy even if small caps remain very inexpensive in relation to their large-cap counterparts. With a median price-to-sales ratio of 9.4 times, the top five S&P 500 businesses had considerably higher average than the Russell 2000 at 2 times. Notwithstanding this difference, Jefferies stressed that elements including better balance sheets, less regulatory pressure under the new government, and a strong merger and acquisition environment might help small-cap momentum in the next year.
With the top 10 components now accounting for 33.3% of the index's overall weight, at a record peak, the research also highlighted market concentration within the Russell 2000. While analysts remain hopeful about further general gains through 2025, this dynamic and higher valuations might limit the upside potential for small caps. The comeback of the Russell 2000 would be a marked turn from years of underperformance, in line with Jefferies' prediction of a more favorable environment for small-cap stocks developing.
