Raymond James Strategist Points to Small Caps Leading 2026

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As markets move deeper into 2026, investors are navigating a landscape shaped by shifting geopolitics, rapid technological change, and an active earnings cycle. Speaking from the New York Stock Exchange, Matt Orton, chief market strategist at Raymond James Investment Management, shared his perspective on recent market moves and where opportunities may be emerging in the months ahead.
U.S. equities opened Tuesday under pressure, with major averages posting declines of roughly 1%. The pullback followed a strong start to the year and has prompted some investors to reassess positioning. Orton acknowledged the short-term volatility, much of it driven by geopolitical tensions and renewed tariff concerns, but emphasized that the broader equity backdrop remains constructive. “It’s been a very, very good year for equities,” he said, encouraging investors to look past day-to-day headlines and focus on underlying fundamentals.
One area Orton highlighted was the renewed strength in small-cap stocks. Since April 8, small-caps have outperformed larger benchmarks such as the S&P 500, drawing attention from investors searching for underappreciated opportunities. With economic data pointing to stronger GDP growth and a supportive tax refund season, smaller companies are beginning to benefit from improving domestic conditions. Orton noted that small-cap equities remain underrepresented in many portfolios and argued that their recent momentum reflects a durable trend that could extend through 2026.
Biotechnology is another sector drawing increased attention, particularly due to a surge in merger and acquisition activity. Orton pointed to deals such as GSK’s agreement to acquire RAPT Therapeutics for approximately $2.2 billion as a sign of growing confidence in the space. He expects biotech to remain active in 2026, supported by a more favorable regulatory environment and large pharmaceutical companies with strong balance sheets looking to offset upcoming patent expirations. Those factors, he said, create meaningful long-term growth potential for the sector.
The defense industry also stands out as an area of opportunity. With geopolitical risks remaining elevated, Orton described defense companies as increasingly high-quality assets, supported by expanding cash flows and strong order backlogs. He noted that global demand for security continues to rise, benefiting firms that are investing in advanced technologies such as robotics and communications. According to Orton, defense companies that successfully integrate technology into their platforms are well positioned for sustained growth.
Artificial intelligence remains a central theme as well, though Orton suggested the focus is shifting. While last year’s AI narrative centered on large-scale deployment and hyperscale adoption, 2026 is likely to bring greater attention to bottlenecks in power infrastructure and memory production. Companies involved in semiconductor capital equipment could be key beneficiaries of this next phase. Orton referenced strong earnings from TSMC as an example of continued momentum in the space, reinforcing the importance of watching supply chain dynamics tied to AI expansion.
As the year unfolds, Orton stressed the importance of maintaining a disciplined and diversified approach. By balancing exposure to small-cap stocks, biotechnology, defense, and AI-related opportunities, investors may be better positioned to navigate uncertainty while capturing growth. While geopolitical challenges and market pullbacks can create short-term volatility, Orton emphasized that staying focused on long-term earnings potential and structural trends remains essential. In his view, success in 2026 will come from keeping perspective, remaining selective, and being ready to act when opportunities present themselves.