The summer of 2025 might belong to small caps, according to market watchers cited by CNBC. Since early June, the small-cap-tracking Russell 2000 index is up 3.6%. This could mark the start of a rally, some think.

Details

Small-cap stocks may be in for a summer rally, as several client notes seen by CNBC state. Since Monday, June 2, the Russell 2000 has gained 3.6%. 

“We think this could be setting up for ‘smallcap summer,‘” Jonathan Krinsky, chief market technician at BTIG, wrote over the weekend.

The chief technical strategist at Roth, J.C. O'Hara, echoed Krinsky: «We have been closely watching Small Caps as the Russell 2000 started to form an accumulation pattern several weeks ago. Last week, price was finally able to break out. This sort of formation historically has further upside.»

Despite the recovery, the Russell 2000 is still down 3.9% since the start of the year, while the S&P 500, which tracks the largest companies, has added 2.3%. In five similar instances when small caps fell similarly from January through May, they rebounded sharply in June, points out Julian Emanuel, senior managing director for equity, derivatives, and quantitative strategy at Evercore ISI. And when the January-May outperformance was as vigorous as it has been this year, «June seasonality is especially pronounced,» he explains. Emanuel asks: «Have universally unloved Small Caps become ‘So Bad, They’re Good’?» As an investment idea, he recommends buying the iShares Russell 2000 ETF (IWM).

The S&P 500 may also benefit from the rally in small caps, CNBC writes. An «improvement in breadth» in the Russell 2000 could be taken to mean the recent gains in the larger-cap index are similarly sustainable. “The Russell 2000 would be a likely catalyst for broader market activity, and a Russell breakout above 2,180 (200-day average) should help ignite this untapped firepower,” according to Ari Wald, head of technical analysis at Oppenheimer. The index closed at 2,144.45 points yesterday, June 9. 

«We believe small caps are overdue and have room to run back toward their prior highs,» says Piper Sandler’s Craig W. Johnson. The Russell 2000 reached a local high of 2,442.03 points on November 25. 

Context

The Russell 2000 dropped nearly 10% in the first quarter amid heightened recession fears, as smaller companies are more sensitive to economic cycles, CNBC writes. When Trump announced his tariff agenda on April 2, the index took another blow. In just five days, from April 2 to April 7, it collapsed 11.5%. It then began to recover little by little, helped after it emerged that most of the tariffs would be put on hold. Now that trade wars are off the front pages, and with investors expecting interest rate cuts by the Fed, small-cap stocks are starting to look attractive.

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