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: 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.

Goldman Sachs Holds 6,500 S&P 500 Target Despite Rising Yields Goldman Sachs is maintaining its 12-month S&P 500 target of 6,500, even as bond yields rise. The yield on the 10-year U.S. Treasury has jumped from 4% in late April to 4.43%, fueled by concerns over tariffs, inflation, and increased term premia—investors demanding higher returns for longer-term debt. In a note released Friday, strategists led by David Kostin analyzed the impact of higher yields on equities. They forecast the 10-year yield will end 2025 at 4.5%, rising slightly to 4.55% in 2026. Goldman emphasized that for equities, the drivers and speed of rate changes matter more than the actual yield level. Markets typically react better when yields rise due to stronger growth expectations. However, if inflation or fiscal risks are behind the increase—or if yields rise sharply in a short time—a market correction becomes more likely. Since U.S.-China tariff tensions escalated on April 2, investors have become more focused on the connection between yields and stock returns, though Goldman notes there’s no consistent historical relationship. Goldman expects the S&P 500’s forward P/E ratio—currently near fair value—to remain stable over the next year. Large-cap companies with long-term, fixed-rate debt are less exposed to rate volatility. Small caps, by contrast, are more vulnerable due to their reliance on shorter-term, floating-rate borrowing. Given this outlook, Goldman continues to recommend investors prioritize companies with strong balance sheets.

Jim Paulsen Sees More Market Tailwinds Ahead Tariffs and trade tensions continue to shape market sentiment, but despite the noise, the S&P 500 remains just 3.8% below its February 19 closing high. Still, with trade policy grabbing most of the headlines, it’s worth asking: What other forces might drive the market from here? According to veteran Wall Street strategist Jim Paulsen, now retired and writing on his Paulsen Perspectives blog, several key indicators could begin offering much stronger support for equities in the coming months. Paulsen points to five main pillars: the Fed funds rate, the 10-year Treasury yield, inflation, M2 money supply growth, and consumer confidence. Based on historical analysis going back to the 1960s, he finds that the S&P 500 tends to perform significantly better when these factors are moving in a favorable direction. For example, when M2 money supply is expanding, the S&P 500 has returned an average of 12.7% annually, compared to just 2.2% during periods of slowing growth. Similarly, the index has gained an average of 10.5% more during times when the Fed is cutting rates rather than hiking them. Each of the five factors individually correlates with stronger market performance, but the real kicker comes when all five are aligned. In such cases, Paulsen says, the S&P 500 has posted an average annual gain of 16.3%. So where does that leave investors now? Paulsen believes the market setup is turning more favorable. He notes that this bull market, which began in October 2022, has unfolded largely without help from the usual supports. The Fed has maintained a tight policy stance, and money supply growth has been unusually weak—just 0.8% annually, with real M2 contracting at a rate of -2.2%. Long-term bond yields haven’t provided much relief either. The 10-year Treasury yield has hovered between 3.5% and 4.75%, lacking the kind of downward trend that typically bolsters stocks. The one clear tailwind has been inflation. Since the rally began, inflation has dropped from 7.75% to 2.3%. And while new tariffs could cause a modest uptick, Paulsen expects inflation to remain stable—or even drift lower—over the next year. Consumer confidence, meanwhile, has been weak but is showing early signs of recovery. Paulsen concedes that some investors view this bull run as overstretched, especially given high valuations. But he argues that as economic growth slows and inflation remains tame, the environment could shift in favor of equities. “If sentiment moves toward a low-inflation, sluggish-growth outlook,” he writes, “the market could benefit from multiple supports working in its favor. Investors should think twice before abandoning this bull market—it’s not out of fuel yet.