Mid-cap stocks broke out to all-time highs yesterday.
That’s new. And it matters.
We’ve spent plenty of time talking about large caps making record highs. The S&P 500 keeps doing what healthy bull markets do: pushing into uncharted territory.
Small caps, meanwhile, have been front and center for months and have already had their turn at fresh highs.
Now it’s the mid caps’ turn.
These stocks rarely get any love. They’re not flashy, like small caps, and they don’t have the size, index weight, or constant media attention of large caps.
The Jan Bradys of the world are stuck in the middle, quietly doing the work.
But if you talk to real market veterans, guys who traded in the 1960s and ’70s, they’ll tell you something interesting.
Many of their biggest winners didn’t come from the largest stocks or the smallest ones.
They came from stocks that were mid caps when they bought them.
That’s because mid caps occupy a sweet spot. They’re no longer unproven. They’ve survived, grown, and earned their place.
Yet they still have room to expand, take share, and eventually graduate into large-cap status.
Now, for the first time in a while, this overlooked group is breaking out to new highs.
That’s not just another headline. It’s a signal.
The Mid Cap 400 Index
Since 1994, mid caps have outperformed large caps about 48% of the time and small caps roughly 54% of the time, according to State Street.
Despite that track record, many portfolios still have little to no exposure to mid-caps at all.
The S&P Mid Cap 400 Index is designed to track 400 U.S.-based mid-sized companies, generally those with market capitalizations between roughly $2 billion and $10 billion.
Those thresholds shift over time, but the idea is constant:
These are established businesses that are no longer small, yet not fully mature enough to be considered large.
In other words, they’re the market’s middle children.
And, as of yesterday, they closed at their highest levels in history:
That’s important because this group did not make new highs last year. Large caps did it repeatedly. Even small caps managed to get there.
Mid caps were the holdouts. But they’re joining the party.
When a new group begins to participate to the upside, we call that “breadth expansion.” Historically, that’s the opposite of what you see near major market tops.
At major peaks, leadership narrows. Fewer stocks carry the market higher. Breadth deteriorates.
While there were plenty of loud narratives this fall warning about weakening breadth, we did what matters most: We counted.
And the data told a very different story.
This is participation expanding, not contracting.
What Makes a Mid Cap?
The most important difference between mid caps and large caps shows up immediately in sector exposure, starting with Technology.
The Mid Cap 400 Index carries just a 16% weighting in Tech. Compare that to the large-cap S&P 500, where Technology makes up more than 35% of the index. That’s more than double the Tech exposure.
Mid caps also lean far more heavily into Industrials. The S&P 500 allocates roughly 7% to Industrials, while the S&P 400 comes in closer to 22%. That’s about three times the exposure.
It doesn’t stop there.
Mid caps offer more Financials, more Consumer Discretionary, more Energy, and more Materials than its large-cap counterpart.
In other words, you’re getting a much broader mix of economically sensitive sectors and far less dependence on a single theme carrying the market.
That diversification matters.
Because, for the first time since 2024, mid caps have closed at new all-time highs.
So, when we ask the most important question of all – are more stocks going up or fewer stocks going up? – the answer becomes clear.
An entire segment of the market that had been lagging is now breaking out. That’s breadth expansion.
This is not what markets look like near major tops. This is what healthy bull markets look like as participation broadens and leadership rotates.
The market is doing the talking. And it’s saying the same thing it’s been saying for a while.
This is a bull market.
And the list of stocks participating in it is getting longer.
I hope you’re paying attention. Because most people still aren’t.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs