Russell 2000 faces limited upside in early 2026, JPMorgan says

• Early 2026 targets range from 2,576 (December 2025) to 2,628 (mid-year), with base-case support at 2,232-2,235
• Rising Treasury yields pose headwinds for rate-sensitive small caps, limiting outperformance potential
• Recession scenario could drive index down to 2,042 support level or retest long-term support near 1,633-1,740

Russell 2000 Limited Upside Expected in Early 2026, JPMorgan Analysis

JPMorgan analysts project modest gains for the Russell 2000 Index in the first half of 2026, with upside constrained by interest rate pressures. The small-cap index has traded within a broad range since 2021, struggling to outperform in recent years.

Key Technical Levels:

• 2025 trading range: 1,633-1,740 (April low) to 2,458-2,466 (2021-2024 peaks)
• Base-case support: 2,232-2,235
• Upside targets: 2,576 (December 2025) to 2,628 (mid-2026)
• Downside recession scenario: 1,783-1,819 (October 2023 channel) and 1,633-1,740 (long-term support)
• Major support in downturn: 2,042

Market Implications:

JPMorgan cites rising bearish pressure in medium to long-term Treasury yields as a significant headwind for rate-sensitive small-cap stocks, even if broader markets maintain risk-on sentiment. The bank's base case assumes the index holds above September-November pattern objectives.

Risk Factors:

Should recession risks materialize, the Russell 2000 could face substantial downside, potentially retesting October 2023 levels. JPMorgan notes the index has a "well-rehearsed script" for recession scenarios, suggesting predictable support and resistance levels.

The analysis indicates small-caps may participate in broader market gains but face structural challenges from interest rate dynamics. Investors are advised to remain cautious given limited upside potential and significant downside risks tied to economic growth concerns and monetary policy impacts on borrowing costs.