Forget Apple and Nvidia. Why June belongs to small caps.

Text size

Small-cap stocks rebounded with a vengeance in June after a month of May that was all about large-cap tech. This is a sign that investors are less and less concerned about the big picture.

THE

S&P SmallCap 600
the index fell 2% in May, while

Nasdaq 100
jumped almost 8%.

Then things changed: in June, the S&P 600 was up more than 8%; the Nasdaq 100 is essentially flat. May’s rally was fueled by investor enthusiasm for artificial intelligence, benefiting a select group of already popular stocks.

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

With the debt ceiling agreed and the AI ​​mania gone, the rally widened. Since early June, the

S&P500
the index is up 2%, while the average stock has returned 4% and tech giants like

Nvidia

And

Apple

gained less than 1%. The outperformance of small caps in June was an extension of the broadening of the recovery to more cyclical and economically sensitive sectors. Investors showed less fear about the economy and the financial system – regional banks moved in – making many small caps more attractive.

The result: outperformance of sectors that make up a much larger share of small-cap indices than large ones. Technology represents 27% of the

S&P500
against 13% for financials and 9% for industrials. In the S&P 600, financials and industrials represent 34% and technology only 14%. Will the rejuvenation of small caps continue? Only if the outlook looks even rosier.

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

Last week

semblance of normalcy

With the default drama over, the Treasury has launched a trillion-dollar borrowing spree, which could put pressure on banks as yields rise. Unemployment claims hit their highest level since October 2021. Chinese exports fell in May, and its government moved to help real estate and manufacturing and asked banks to cut deposit rates. During the week, the

VIX
spiked, then calmed down. THE

Dow Jones Industrial Average
increased by 0.34%, to 33,876.78; the S&P 500 rose 0.39% to 4298.86, ending its longest bear run since the 1940s; and the

Nasdaq Compound
recorded a gain of 0.14%, to 13,259.14.

More Trump accusations

In a widely expected move, the Justice Department has charged former President Trump and an aide with 38 counts of mishandling classified documents, including obstruction of justice and violations of the Privacy Act. ‘spying.

More oil cuts

At an OPEC+ meeting in Vienna, Saudi Arabia cut another million barrels a day of oil production next month, an attempt to boost falling prices. OPEC also agreed to cut the quotas of four African countries and Russia, while increasing that of the United Arab Emirates.

The dam breaks

Ukraine and Russia have blamed each other for an explosion that breached a dam on the Dnipro River in southern Ukraine, threatening thousands of people and the Zaporizhzhia nuclear power plant. After weeks of probing the Russian lines, Ukraine finally began its counteroffensive, using German tanks to push into the southwest.

Smoke alert

Thick smoke from record-breaking wildfires in Canada spread through the Ohio Valley and along the east coast, then spread south, forcing the cancellation of outdoor events, disrupting air travel and bringing back masks.

The corporate front

Apple

introduced a $3,499 mixed reality headset, its first major product in over a decade. The stock price spiked, then fell on news of the high price… The Securities and Exchange Commission sued crypto exchange Binance and founder Changpeng Zhao on 13 counts, including the mixing of client assets and the diversion of funds to its trading operations. A day later, the SEC filed a complaint against the American company Coinbase Global… GameStop fired its CEO, and Warner Bros. Discovery has let go of CNN CEO Chris Licht… Palo Alto Networks will replace Dish Network in the S&P 500… General Motors has joined Ford Motor in a deal to use Tesla superchargers.

Annals of Deal Making

Illumina is appealing a Federal Trade Commission in-house court ruling blocking its purchase of the Grail cancer screening screen… In a shocking turnaround, the PGA Tour has agreed to merge with LIV Golf, the tour dissident backed by Saudi Arabia. The pair had been locked in bitter litigation… Sequoia Capital said it would separate its US and Chinese operations… BlackRock is buying Kreos Capital, a major provider of start-up loans. The price was not disclosed… Reuters reported that Elon Musk’s Neurolink was worth around $5 billion, based on private stock trades.

Write to Robert Teitelman at bob.teitelman@dowjones.com