Evercore Strategist Says June Could Be a Breakout Month for Small-Cap Stocks
Despite persistent trade worries weighing on markets, investors managed to shrug off the gloom on Monday. That resilience could set the stage for further gains Tuesday—particularly for smaller stocks.
The S&P 500 is just 3.78% below its February peak after strong performance in May, but it remains uncertain whether the rally can sustain through summer. Meanwhile, small caps have been largely overlooked. The Russell 2000 is down 7.17% year-to-date and sits more than 15% below its November 2021 high, compared to a modest 1% gain for the S&P 500.
That sets up our call of the day from Evercore ISI’s Julian Emanuel and team, who argue that June presents the best seasonal setup of the year for small-cap outperformance.
Large-cap stocks have outpaced small caps by 9% through May—a gap driven by tariff concerns and interest rate sensitivity, both of which disproportionately impact smaller, domestically focused companies.
However, Emanuel notes that June typically favors small caps, in part due to the annual Russell Index rebalancing. Historically, when large caps outperform significantly through May—as they have in 2025—small-cap gains in June tend to be even stronger.
Emanuel sees a “catch-up” moment coming: “The case for small-cap outperformance is reinforced by an attractive valuation relative to large caps, and a Fed expected to cut rates further amid modest economic growth.”
For broad exposure, Evercore recommends the iShares Russell 2000 ETF (IWM). While small caps have lagged overall, several standouts in the ETF have thrived—Hims & Hers Health (HIMS) is up 134% this year, thanks in part to a partnership with weight-loss drug maker Novo Nordisk. Sprouts Farmers Market (SFM) is up 41%, favored for its local supply chains that offer some insulation from tariffs.
While still a contrarian call—most major Wall Street firms remain wary of small caps—Evercore isn’t alone. Fundstrat’s Tom Lee also sees opportunity. As investors shift focus to 2026 and a more dovish Fed, he believes beaten-down small caps could become a smart bet.
