Jefferies has revised down its 2026 earnings growth projection for small and mid-cap companies, lowering the rate to 11.5% from a prior estimate of 13.5%. The adjustment reflects the firm's assessment of the economic effect of higher oil and gasoline prices amid the ongoing war in Iran.
In explaining the update, Jefferies said it gave equal weight to two distinct outcomes. One scenario reflects the firm economics team's view - average earnings growth of 13.7% when GDP exceeds 2%. The other draws on historical outcomes when both oil and gasoline prices rise year-over-year, which showed 9.3% earnings growth. Averaging those two figures produced the new 11.5% forecast.
Jefferies noted that analysts across the Street have not broadly cut estimates to the same degree. Current consensus figures sit at approximately 12% for small-cap stocks, about 13% for mid-cap names and roughly 16% for large-cap companies. The firm said the upward movement in large-cap estimates has been driven largely by the X-Sweet 16.
Despite the downward revision, Jefferies emphasized that the 11.5% projection remains above the long-term small-cap earnings growth average of about 8%. The firm also highlighted persistent positive revision activity: the three-month rolling earnings and sales revision ratios have stayed above 1.0 for seven consecutive months, the longest run since the end of Covid.
Alongside the forecast change, Jefferies adjusted its sector stance. The firm moved to overweight positions in Financials, Health Care and Consumer Discretionary. Industrials were downgraded to market weight from overweight, a re-rating the firm attributed to elevated sentiment, recent performance and higher valuations. Consumer Staples were raised to market weight from underweight.
In terms of style and market positioning, Jefferies said small-cap stocks have held up relatively well despite heightened volatility, although quality names within small caps have not outperformed as the firm had expected. The firm reiterated its preference for small-cap over large-cap, a tilt toward value rather than growth, and a bias for cyclical and quality stocks.
The firm’s methodology, the current consensus comparisons and its sector repositioning underscore how Jefferies is adjusting both forecasts and portfolio recommendations in response to commodity-driven pressures and shifting market dynamics.