Invesco NASDAQ Future Gen 200 ETF

QQQS

Market cap $2.11M

Between the artificial intelligence (AI) disruption trade — which has punished some large- and small-cap growth names — and conflict in Iran, some investors may be thinking now is an appropriate time to go into wait-and-see mode when it comes to smaller stocks. It's not illogical to feel that way.

Market lore is littered with tales of small-cap companies becoming large-caps, generating significant returns for early investors along the way. Those tales often tempt new investors to embrace smaller stocks, including some on the more speculative side of the ledger.

Small-cap stocks are off to hot starts this year. This sparks hopes the asset class could finally be in for a year of impressive performances.

Broadly speaking, small-cap stocks and the related ETFs frustrated investors this year. However, there's hope (and more) for smaller stocks entering 2026.

One day doesn't make a trend. But it's hard to ignore the effect Fed Chair Powell's comments made last Friday had on equities, particularly small-caps.

Small-cap stocks and ETFs appear to be finding solid footing. That's an arguably surprising scenario given the reputation of summer months being trying for equities.

Look now, because small-cap stocks and relevant ETFs are having their long-awaited moments. Following a one-month gain of more than 6%, the Russell 2000 Index is higher by nearly 9.30% for the 90 days ending July 1.

In an extension of a long-running theme, biotechnology stocks are disappointing investors again in 2025. Large-cap gauges addressing the industry have performed mostly in line with the S&P 500.

There's roughly 10 months left in 2025. That's ample time for small-caps stocks and related ETFs to potentially deliver on long-awaited outperformance of large-caps counterparts.

ETF issuance is profitable for Wall Street, leading to an overwhelming number of ETFs that may not serve investors' best interests. Avoid ETFs with less than $100 million in assets due to inadequate liquidity and higher trading costs. Invest in ETFs with total annual costs below 0.49% to ensure low fees; high fees don't guarantee quality.