If you spent the week ending October 2, 2026, watching the broader market averages, you probably felt like you were treading water. The large-cap S&P 500 index slipped 0.28% to close at 7,722.72, and the Dow Jones Industrial Average dropped 1.30%, while the tech-heavy Nasdaq Composite managed to ease up 0.50%.

As regular readers of the SmallCap Informer know, the real story often unfolds when you look past the giant tech names and examine the smaller companies doing the heavy lifting. The S&P SmallCap 600 index closed the week at 1,685.75, virtually unchanged with a slight 0.10% gain after a solid 1.21% advance on Friday. That performance noticeably outpaced the broader Russell 2000 index, which dropped 0.20% over the same five days. This is precisely why we favor the S&P SmallCap 600 over the Russell, because Standard & Poor’s requires companies to demonstrate an initial track record of positive earnings before they can even join the index. Year-to-date, the S&P SmallCap 600 has climbed 13.72%, and its trailing twelve-month gain sits at a respectable 16.23%.

The week’s action played out against a macroeconomic environment where the Federal Reserve remains front and center. Following the central bank's September 16 decision to bump the federal funds rate by 25 basis points to a target range of 3.75% to 4.00%, market participants spent early October absorbing higher-for-longer interest rate rhetoric. Solid consumer spending, stubborn commodity costs, and steady labor figures continue to keep Treasury yields elevated across the board.

Those persistent financing costs created clear dividing lines across industries. Capital-intensive businesses, especially regional lenders and real estate firms that rely heavily on short-term debt refinancing, face clear headwinds. In contrast, software, semiconductor, and communication businesses are holding their ground quite well. Among individual companies, DraftKings climbed 5.00% on strong seasonal engagement, and Sea Limited added 3.05%, while Intel slipped 3.67% as manufacturing execution questions lingered.

In the near term, everyone is focused on the start of third-quarter earnings season, looking closely at profit margins and checking whether debt-laden businesses are beginning to feel the pinch of these interest rates. For long-term fundamental investors using sensible tools, the outlook remains far more constructive. Patient investors recognize that valuation multiples on high-quality small-cap businesses remain attractive relative to mega-cap favorites, enterprise automation continues to drive genuine operational efficiency, and holding profitable growth companies for three to five years remains a reliable strategy through any market cycle.

In the SmallCap Informer

Since the October 2026 issue was published on September 18, 2026, our top performers through October 2, 2026, have been:

• Karat Packaging (KRT) +16.3%
• Fabrinet (FN) +11.8%
• Cavco Industries (CVCO) +10.6%
• Photronics (PLAB) +8.7%
• UFP Technologies (UFPT) +8.4%

Plenty of SCI-covered stocks remain in the buy zone. Subscribe today to unlock all of our current best ideas for total return.

Stay the course!

— DOUG GERLACH, EDITOR-IN-CHIEF

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