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.

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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