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June is the month for small caps

Small caps do well historically in June

Small-cap stocks snapped back with a vengeance in June after a May that was all about large-cap tech. It’s a sign investors are growing less worried about the big picture.

The S&P SmallCap 600SP600EQ –0.92%  index fell 2% in May, while the Nasdaq 100 NDX +0.30%  surged nearly 8%.

Then things flipped: In June, the S&P 600 is up more than 8%; the Nasdaq 100 is essentially flat. May’s rally was driven by investor enthusiasm over artificial intelligence, benefiting a narrow group of already highly valued stocks.

Meanwhile, the rest of the market held its collective breath over debt-ceiling talks. Large-caps are viewed as safer than small-caps, with more-diversified businesses, greater resources, and stronger balance sheets. They tend to outperform when investors are wary of taking on more risk.

The result: outperformance by sectors that make up a much larger portion of small-cap indexes than large. Tech is 27% of the S&P 500 versus 13% for financials and 9% for industrials. In the S&P 600, financials and industrials make up 34% and tech just 14%. Will the rejuvenation of small-caps continue? Only if the outlook looks even rosier.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com