Evercore Strategist: June Could Be Prime Time for Small-Cap Stocks

Stocks continue to face pressure from lingering trade concerns, but Monday’s rebound showed that investors are still willing to look past the noise. That resilience could carry over into Tuesday—and according to Evercore ISI, it might be small-cap stocks’ time to shine.

Despite strong gains from large caps, the S&P 500 is only 3.78% below its February peak after a record-breaking May. But while the broader index has managed to stay afloat, small-cap stocks have struggled. The Russell 2000 is down 7.17% so far in 2025 and remains over 15% below its all-time high from November 2021. In contrast, the S&P is up nearly 1% year to date.

This underperformance sets the stage for Evercore ISI’s latest call. Led by strategist Julian Emanuel, the team sees June as a key seasonal window for small caps to outperform.

Large-cap names have beaten small caps by 9% through May, a wide gap driven by factors such as trade tensions, higher interest rates, and weakening consumer sentiment—issues that tend to hit smaller, U.S.-focused companies harder.

However, Evercore notes that June’s historical trends, coinciding with the annual Russell Index rebalancing, typically favor small caps. “When large-cap outperformance through May has been this strong, June has historically delivered a sharp reversal in favor of small-cap stocks,” the team wrote.

Beyond seasonality, Evercore sees strong fundamentals supporting the case. Small caps are trading at attractive valuations relative to large caps, and with the Federal Reserve expected to cut rates as economic growth continues at a modest pace, the macro backdrop may finally start to tilt in their favor.

To gain exposure, the team recommends the iShares Russell 2000 ETF (IWM). While small caps overall have underperformed, there are standout names in the index:

• Hims & Hers Health (HIMS) is up 134% this year, boosted by a partnership with Novo Nordisk, the maker of the weight-loss drug Wegovy.
• Sprouts Farmers Market (SFM) has surged 41%, with investors drawn to its focus on local products that could help offset tariff impacts.

Though the call on small caps remains a contrarian one—most major Wall Street firms have largely ignored the sector—Evercore isn’t alone. Tom Lee of Fundstrat Global Advisors also sees opportunity. He believes that once investors look past the current tariff pressures and anticipate a more accommodative Fed in 2026, small-cap stocks could see a major rebound.