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Special Report Russell 2000 Stocks: Too Early or Finally Interesting?Reported by Chris Markoch. First Published: 3/29/2026. 
Key Points - The Russell 2000 remains discounted versus the S&P 500, creating a potential opportunity if interest rates begin to fall.
- The iShares Russell 2000 ETF (IWM) offers diversified exposure to small caps, with institutional buying signaling growing interest.
- Stocks like Mueller Water Products and AAON highlight sector-specific growth in infrastructure and data center demand.
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It’s helpful to remember that many of today’s top mega-cap companies started as speculative small-cap stocks; regardless of size, the best stocks are those that continue to grow revenue and earnings. Investors must accept greater volatility with small-cap stocks. Even modest price moves can translate into outsized returns or losses. Many of these companies are not yet profitable, may generate little to no revenue and often rely on debt to finance growth. That wasn’t a problem when the Federal Reserve kept interest rates near zero. Capital was cheap and risks were muted. But the cost of capital has risen with higher rates, and recent remarks from Fed Chair Jerome Powell suggest the Fed is in no hurry to cut rates this year. It’s no wonder the Russell 2000 index, commonly referred to as the “small-cap” index, is down slightly this year, although it has posted a solid three-year run despite the higher-rate environment. Still, the valuation gap between the Russell 2000 and the S&P 500 remains wide. As of March 26, the Russell’s average price-to-earnings ratio was about 19x versus roughly 27x for the S&P 500, implying Russell valuations would need to rise by roughly 50% to match the S&P. That valuation gap is one reason some analysts think now is an attractive time to get positioned in Russell 2000 stocks. If the market rallies on any hint of lower interest rates, these names are likely to draw renewed investor interest. IWM ETF Offers Broad Exposure to Russell 2000 Opportunities Exchange-traded funds (ETFs) aren’t built to beat the market, but they play an important role in most portfolios. One option for investors who want exposure to small-cap stocks without single-stock risk is the iShares Russell 2000 ETF (NYSEARCA: IWM). As its name implies, this fund is designed to help investors “own the index,” similar to how the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) provides S&P 500-like performance. Investors may find the composition of the IWM fund notable: the top four sectors by weighted exposure are financials, health care, industrials and consumer discretionary, each accounting for more than 10% of the fund. That contrasts with the SPY, which has over 31% of its sector exposure in technology. That sector mix suggests where analysts and institutions see potential growth. Institutional activity has been strong for IWM — roughly a 4:1 buying-to-selling ratio over the past 12 months — a trend retail investors should note. Mueller Water Products Taps Into Infrastructure Spending Trends Examining IWM’s sector exposure can help uncover individual Russell 2000 companies that may be positioned for gains. One such name is Mueller Water Products (NYSE: MWA). With a market cap of about $4.3 billion on March 26, it sits near the upper end of the Russell 2000. Mueller is a major player in the water infrastructure industry and has one of the largest installed bases of iron gate valves and fire hydrants in the United States. The company has reported solid year-over-year revenue and earnings growth that analysts expect to continue, helped by federal investment to rebuild aging water systems. Most of Mueller’s manufacturing is U.S.-based, aligning with policy preferences for onshore production and limiting exposure to imported materials and tariff risk. MWA stock is up more than 16% in 2026, and the analyst forecasts on MarketBeat show a consensus price target implying over 10% upside. With a price-to-earnings ratio around 22, it also trades at a slight discount to many other industrial stocks. AAON Stock Gains Momentum From Data Center Demand AAON Inc. (NASDAQ: AAON) is another mid-cap included in the Russell 2000. The company manufactures specialized heating and cooling systems for commercial and industrial applications. In 2026, demand from data centers is a notable growth driver. In its Q4 2025 earnings report, AAON cited a backlog of about $1.3 billion, supporting guidance for sales growth of 18%–20% and gross margins of 29%–31%. Like Mueller, most of AAON’s revenue is generated in the United States. AAON stock has been volatile over the past 12 months, with more than 20 moves of at least 5%. Still, analysts remain bullish: the consensus price target of $107.75 would represent roughly a 30% gain from AAON’s late-March share price. | 
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