In 2026, the FTSE 100, Dax, and S&P 500 have all reached record highs. Mid-cap indices are also doing well, with the Russell 2000 and FTSE 250 close to their previous peaks, and the MDAX has even surpassed 30,000. The performance of mid-cap stocks is supported by momentum and high-quality value stocks. The tech sector is a big driver for the S&P 500, with Sandisk jumping 72% and the semiconductor sector increasing by 25%. This shows the concentration risk associated with US blue-chip stocks.

Diverse Performers in Mid Cap Indices

In contrast, the Russell 2000 has a variety of top performers from sectors like basic materials, energy, and telecoms. Erasca stands out, showing strength despite tech market changes. However, volatile commodity prices remain a concern, while the FTSE 100 is supported by mining and defense companies. The FTSE 250, which focuses more on the UK market, includes diverse companies like Ocado and Oxford Biomedica. Its revenue base is 45-55% from the UK, compared to 25-30% for the FTSE 100. This makes the FTSE 250 well-positioned to benefit from the UK’s recent economic growth, highlighted by surprising growth figures in November. With major indices hitting record highs, this rally seems fragile and too concentrated. The top 10 stocks in the S&P 500 now account for over 34% of the index, a level we haven’t seen since the late 1990s dot-com boom. This indicates a need for strategies like pairs trading, such as going long on Russell 2000 futures while shorting Nasdaq 100 futures, to protect against potential downturns in AI stocks. An options-based strategy could involve buying call options on mid-cap ETFs like IWM to harness their broadening momentum, while also buying put options on a tech-heavy index ETF like QQQ to hedge against tech risks. The VIX volatility index is currently low at 13.5, making options an affordable way to express this view.

Advantages of Domestic Focus

In the UK, the FTSE 250’s focus on domestic companies provides a clear edge over the FTSE 100, which is more exposed to fluctuations in commodity prices and global tensions. Recent data showing a 0.2% growth in the UK economy for November 2025 reinforces this advantage, supporting a more localized investment strategy. For traders, this could mean taking long positions in FTSE 250 futures while shorting FTSE 100 futures. This approach allows them to capitalize on the potential outperformance of the domestic economy while mitigating the risks associated with multinational mining and energy firms prevalent in the larger index. It represents a direct play on the UK’s emerging economic recovery. We’ve noticed a shift towards smaller companies beginning late last year, as the Russell 2000 rose over 12% in the last quarter of 2025, while the S&P 500’s gains largely came from a few key stocks. To benefit from this ongoing momentum, traders might consider selling put spreads on mid-cap indices to generate income while maintaining a bullish outlook. This strategy capitalizes on both a rising market and the passage of time. Create your live VT Markets account and start trading now.

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