Let’s be honest: if you’ve been riding the small-cap rollercoaster this year, you probably felt like the ride only went down for a while. But last week? It finally felt like we caught some air.
As of Friday, May 16, the Russell 2000 – our small-cap benchmark – wrapped up its sixth straight week of gains, marking its longest winning streak since December 2023. After months of lagging behind the S&P 500 and Nasdaq, small-caps have finally started fighting back.
And then came the kicker: on Monday morning, May 19, Russell 2000 futures spiked 3.5% pre-market. Why? A 90-day U.S.–China tariff truce. Suddenly, those small domestic names – usually more vulnerable to trade chaos – were back in the game.
So let’s walk through what happened, who led the charge, and what traders are watching next.
The Russell’s Big Comeback RUT–
Here’s the scorecard: the Russell 2000 closed up 0.89% on Friday, ending the week near 2,113. That erased most of its April losses. But it’s still down about 5% year-to-date, so we’re not breaking out the champagne yet.
Still, a six-week rally? That’s meaningful. Especially when futures turn green before the Monday bell on geopolitical news.
The tariff pause between the U.S. and China gave traders a reason to believe again. Less trade stress means more breathing room for small businesses that rely on supply chains, materials, and domestic demand.
Who Moved the Most?
The small-cap universe is full of noise, but a few names made big statements last week:
- Acadia Pharmaceuticals ACAD–4.46%: After winning a patent case tied to their Parkinson’s treatment NUPLAZID, ACAD shares surged 26%–30% in one session. IP wins like that can be a goldmine in biotech – and the market responded accordingly.
- Tonix Pharmaceuticals TNXP+2.71%: TNXP had a moment too. Shares jumped 21% on Friday, and were up 33.5% over the week, thanks to stronger-than-expected Q1 results and CEO insider buying. A small float and retail interest added rocket fuel.
- Tech/AI Momentum: While not all AI names ripped, a few like Pony.ai grabbed attention with volatile multi-day runs – often tied to sector rotations or rumors.
Biotech and speculative tech led, but earnings were all over the place. In small-cap land, it’s been very “name-by-name.”
Sector Standouts: The Safe, The Speculative, and the Stuck
We’ve seen a clear divide in small-cap sectors lately:
- Underperformers: Tech and consumer discretionary names – especially unprofitable or high-beta companies – have continued to lag. Investors just haven’t had the appetite for growth stocks with rate exposure.
- Resilient Players: Consumer staples, utilities, and telecoms have quietly held up well. These boring-but-steady sectors attracted attention in Q1 and continue to provide a floor when volatility rises.
- Financials & Health Care: Outperformed larger-cap peers. Regional banks and health tech names have found pockets of strength, especially with easing inflation data.
- Energy & Materials: Weak earlier this year, but the tariff truce could change that. These sectors are tightly linked to trade and global manufacturing – so they’re back on watchlists now.
The bottom line? Stability and domestic focus are in; speculative growth still has something to prove.
Macros That Moved the Needle
Now, let’s talk big picture. Because small caps aren’t just moving on earnings – they’re dancing to the macro beat.
- Tariff Pause = Risk-On Rally: The 90-day truce between the U.S. and China sent a clear signal: the trade war is (briefly) on ice. That gave risk assets, especially small caps, a much-needed tailwind.
- Consumer Sentiment Crashed: The University of Michigan’s sentiment index hit its second-lowest level ever at 50.8. Almost three-quarters of respondents blamed tariffs. So yes, the pressure was real. The new trade pause offered some relief.
- Powell’s Pause: The Fed Chair gave a measured speech last week. He didn’t promise cuts – but he acknowledged that April’s cooling PPI and CPI readings are under review. The market’s takeaway? We’re probably staying put at 4.25–4.50% for a while.
- Moody’s Downgrade: Yep – Moody’s knocked the U.S. credit rating down a notch last week. Larger-cap names barely blinked, but for small-cap companies – especially those with high debt loads – higher borrowing costs are no joke.
Earnings: Still Hit or Miss
As Q1 earnings season winds down, it’s a mixed bag. Some small caps have knocked it out of the park (like TNXP), while others have guided lower, trimmed forecasts, or simply gone silent.
We’re in stock picker territory now. The ETF crowd hasn’t rotated fully into small caps – but early movers are watching names with clean balance sheets, improving cash flow, and room to run.
What to Watch This Week (May 20–24)
So where does that leave us?
- Economic Data: Investors will eye U.S. PMI and consumer surveys this week. Any surprise to the upside could keep the rally alive.
- Fed Speakers: Keep one ear on Fed commentary. We’re in a holding pattern, but any “dovish drift” would be bullish for small caps.
- Positioning: Analysts from Citi and JPMorgan say institutional investors are starting to modestly overweight small caps, but the mood is still cautious.
- Resistance Level: Watch 2,150 on the Russell 2000. That’s a technical line in the sand. Break it, and we might be off to the races. Fail? We could consolidate.
Final Take: It’s Not a Breakout – Yet
Let’s not get ahead of ourselves. Yes, small caps are finally waking up. But we’ve been burned before.
Still, after six weeks of steady gains, a solid bounce from lows, and a macro backdrop that’s looking less scary by the day – there’s a case to be made. Small caps are back on the radar.
If the Fed holds, trade stays tame, and earnings hold up? We could be looking at a real shift.
Until then, stay nimble. And don’t sleep on the Russell – it’s starting to speak up again.
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