JPMorgan strategists see a promising outlook for SMid-cap stocks as markets price in a 'blue sky' scenario for 2026. Growth is expected to hold through the first half, supported by stimulus measures in the U.S. and China. While the bank agrees with the optimistic consensus, strategists led by Eduardo Lecubarri suggest a contrarian approach.

Small- and mid-cap stocks have significantly lagged behind large caps for four years, leaving the segment overlooked and mispriced. This underperformance has created wide valuation discounts that offer both opportunity and a buffer if the bullish narrative falters. The recent bull market has been unusually concentrated in mega-cap names, making broad-based gains harder to find.

With large-cap valuations stretched, JPMorgan sees a rotation coming. Investing in SMid-caps now is a way to capture potential upside while maintaining some downside protection.