Small-cap recap/preview: 147% gain for biotech, risk appetite up, earnings down

After last week, the main U.S. small-cap index has now posted three straight weeks of gains as investors’ risk appetite continues to grow. Earnings season is in full swing: More than 200 companies reported results last week, and aggregate earnings per share are down. Below we recap what happened in the small-cap space during the week of April 21-25 and what to expect in the week ahead.

Last week, the Russell 2000 small-cap index rose 6.37% to 1,957.6 points, which marked the third straight week of gains. Meanwhile, the S&P 500 added 4.60% last week.

The growth was led by tech stocks, which climbed 7.10%.

Within the Russell 2000, the best returns came from stocks with high beta (i.e., more volatility), low market capitalizations, and low revenue and earnings growth. This signals that investors’ short-term risk appetite has increased, partly fueled by some easing in concerns over U.S. tariffs, Freedom Broker wrote in a report.

Last week, 137 companies from the Russell 2000 and 75 from the S&P SmallCap 600 reported first-quarter results. Their combined earnings per share were down 12.3% year over year, Freedom Broker calculated, while analysts had expected an increase of 2.4%. Still, it is too early to draw firm conclusions, as results will continue to roll out in the coming weeks. In any case, investors are focusing less on headline numbers and more on how companies are assessing the potential impact of tariffs, according to Freedom Broker.

One of last week’s standout performers was Sutro Biopharma, a biotech firm developing new cancer treatments. Between April 22 and 24, Sutro shares soared 147% from $0.55 per share to $1.30 per share. The stock closed at $0.90 per share on Friday, finishing the week with an overall gain of over 73%.

There was no major corporate news to explain the surge. Freedom Broker attributes the rally to a short squeeze. Short interest in Sutro shares had climbed to 7%, the highest level in two years.

In March, the company announced the termination of clinical trials for its ovarian cancer drug, Luvelta, and a large round of layoffs. That news had previously led to downgrades of analyst ratings and target prices. Currently, Sutro’s pipeline consists only of early-stage research projects, which could limit upside, Freedom Broker pointed out.

The main macro events for small caps — and the broader market — this week will be a U.S. first-quarter GDP print on Wednesday, April 30, followed by April unemployment data from the U.S. Department of Labor on Friday, May 2.

Freedom Broker expects the unemployment rate to come in at 4.2%. Any negative surprise,  for instance, a rise to 4.3%, is seen as likely to trigger losses in the market.