Why Small Caps Romped in May, Leaving Behind Large Stocks

For a change, the small-stock S&P 600 outpaced its large-cap sibling, with healthcare a big plus.

In the worm-has-turned department, small-capitalization stocks had a great May, outpacing large caps with a total return almost three times as high.

The small-cap S&P 600 turned in a 6.5% performance last month, topping the large-cap S&P 500’s 2.4% showing. Year-to-date, the contrast is even more stark, with the S&P 600 clocking a 7.6% return, versus the S&P 500’s 2%. In 2017, the large-cap index was the clear leader, 21.8% to 13.1%.

Why the difference last month? Healthcare, largely, according to Jodie Gunzberg, head of US equities at S&P Dow Jones Indices. For May, small-cap healthcare was up 9.3%, compared to less than 1% for the large-cap benchmark. She noted strong expectation of acquisitions for small companies broadly, as well as increased innovation among those in the health sector.

The S&P 500 was soaring until late January, when fear of rapidly rising interest rates and a trade war impeded its progress. Small companies have little dealings overseas, so they are less affected by exporting goods abroad.

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Tech, which has been the overall market’s driver for some time, suffered a setback on the large-cap side in March amid the controversy over Facebook’s difficulty keeping user data from the clutches of others, such as Russian mischief-makers. Still, tech had a rebound across the board in May, but small caps had more of a head start.  Information technology for small stocks posted a 7.9% gain last month, while large-cap tech came in at 7.1%.

In fact, all 11 S&P 600 sectors were up for May, the first time that has happened since December 2016.

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