After three years of historic underperformance versus the mega-cap leaders, 2026 is shaping up to be a decisive turning point for US small- and mid-cap (SMID) equities. One example that fits the characteristics I’m looking for is Signet Jewelers Ltd. (SIG), writes Erin Gibbs, chief equity strategist at SlateStone Wealth.
(This write up came from our MoneyShow 2026 Top Picks Report. To get a FREE copy of the entire report, click here.)
The macro backdrop is finally shifting in their favor: inflation is easing, borrowing costs are expected to fall as the Federal Reserve continues to cut rates, and earnings growth is set to reaccelerate across the market. Crucially, SMID profits are projected to outgrow the S&P 500 Index ($SPX) this year —a dynamic we have not seen in several years.
Consensus expectations for 2026 highlight the opportunity clearly:
- S&P 500: +15% expected EPS growth
- S&P SmallCap 600: +17% expected EPS growth
- S&P MidCap 400: +19% expected EPS growth
This is exactly the kind of earnings leadership that historically precedes multi-year periods of SMID outperformance. After years of cost inflation and margin pressure, smaller companies are now benefiting disproportionately from stabilizing expenses and improving revenue visibility — while still trading at meaningful valuation discounts to large caps.
At SlateStone Wealth, our SMID work centers on capital efficiency and earnings sentiment. We focus on companies generating strong operating cash flow relative to their reinvestment needs, with improving analyst estimates and healthy institutional ownership. These factors have consistently been reliable indicators of forward performance.
Signet, the largest specialty jewelry retailer in the US, has materially improved its operating model —strengthening free cash flow and sharpening merchandising through data analytics. It has shifted more to online sales.
One-third of revenue now comes from digital and omnichannel, including their James Allen brand. Despite this progress, the market continues to treat jewelry as purely cyclical, leaving the stock undervalued relative to its improved fundamentals.
Keep in mind: We do not advocate owning only one or two SMID stocks. This recommendation is a tiny sliver of the SMID stocks we research and include in our portfolios. At SlateStone, we recommend a basket of at least 50 SMID stocks to capture the breadth of the opportunity set while managing company-specific risk.
For growth-oriented investors looking beyond the mega-cap trade, a diversified allocation to high-quality SMIDs—supported by superior expected earnings growth in 2026—may be one of the most compelling ways to position for the year ahead.
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