The question of whether small-cap stocks are poised for a comeback is currently an interesting topic in the U.S. stock market. Several factors suggest that June 2025 might bring a turning point for these stocks. Here are some of the main points that indicate a potential comeback:
Seasonality
Historically, small-cap stocks have often outperformed their larger counterparts in June. According to an analysis by Evercore-ISI, small-cap stocks have performed better than large caps in 60% of the cases in June since 1990. This could be due to seasonal effects that favor small caps during this month.
Technical Signals
Technical strategists see constructive signals for the Russell 2000, which is considered a benchmark for small-cap stocks. Analysts from Piper Sandler expect that the index, currently at about 2,100 points, could rise to 2,500 points by mid-August, representing an increase of about 19%. Breaching the current level could be a vital turning point.
Valuations and Quality
The valuations of small-cap stocks have declined in recent months, making them a more attractive investment. However, the quality in the small-cap sector has deteriorated as the share of unprofitable companies has risen. Nevertheless, the shift in interest rates could create a more favorable environment for small caps, especially if the economy recovers.
Economic Factors
Economic uncertainty, particularly due to trade policy negotiations and tariffs, could weigh on the market in 2025. Still, constructive trade agreements and strong economic data could enhance the appeal of small caps.
Conclusion
Overall, there are both seasonal and technical arguments that support a comeback for small-cap stocks in June 2025. However, investors need to keep the current economic uncertainties and the quality of companies in mind. In the long run, a shift in interest rates and an economic recovery could improve the environment for small caps.