Small-cap stocks: A closer look at seasonal trends

Yahoo

16-06-2025

Yahoo Finance Markets and Data Editor Jared Blikre, who also hosts Yahoo Finance's podcast Stocks in Translation, breaks down the seasonal market patterns of small-cap stocks. In particular, he focuses on the Russell 2000 (^RUT), the presidential cycle's impact on small-cap market moves, and how things are shaping up a little differently this year.
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Every market has a hidden calendar, and small cap stocks have a rhythm all of their own. But how much does the presidential cycle actually matter? And is 2025 already breaking all of the rules? Today we revisit seasonality. I'm Jared Blickre, host of Stocks and Translation, and first the definition. Seasonality is the predictable and recurring changes in data that tend to happen at the same time every year. And we've talked about this, well, I've talked about this at the beginning of the year. But guess what? Seasonality did not predict anything in regards to the tariff tantrum that we saw, and that kind of bucks seasonality in a big way, but it seems to be back. So let's take a look at this chart. The Russell 2000 started in the late 70s, so this goes all the way back to 1979. Every month, these green bars are the median returns, not the average because that can skew things to the upside or the downside too much. But we take the median returns, and then in white, I also have the percent positive. And I like to see something above 70% to get me really bullish because that is the historical average or median, uh, for any given day in most stock indices. So we're going to notice here, June is kind of ho hum. That's about 1.3%. And what you might notice is that May is a lot better. And in fact, we're just coming off the best May since last November. And guess what here? November is the best month of the year, historically speaking, with a positive rate of about 70%. And December is right there with it, 74% of the time. It is up, uh, over 2%. So you put it all together, we are still in the midst of a nice little seasonality, perhaps back run in the Russell 2000 with small caps, and we did see them lead this week in particular. Now, let's take a little different look here, and you can slice seasonality in a lot of different ways, but one of the ways is to match the presidential cycle. So since 1979, we've had 11 or so first year presidential terms, all the way from Ronald Reagan, he had two, and then you had HW Bush, and then you had two of Clinton, all the way through Biden. And so that's what we're looking at here. And with only 11, uh, with only 11 sample sizes here, we're seeing a lot more volatility. So the green bars are going to vary a bit more. But what you might notice is the standout month is May. And again, we just had the best May since last November. And historically, with this presidential cycle, we've seen returns of about 4%, 91% of the time, 3% plus. Also, June again, ho hum, it's a little bit less than 1% there, but it does have a percent positive of about 73%. And then July looks a little bit better. What you might notice here is that August and September are really not the greatest months in this cycle. So that's something to look out for potentially, especially August, which has a median negative return and also only a 45% positive rate, which is pretty low here. And I'm going to show a final chart. Hopefully, I'm not going to confuse things anymore, but I did want to show you what has happened this year, and that is in blue here. So this is a 2025 chart. Here we have, I'm going to trace out what the Russell 2000 has done this year. And there's that big plunge, uh, into the early April that we saw. And then I have two maps, the white and the green lines. Now the white line is going to closely match what has happened that first bar chart that I showed you since 1979 every year and those median returns. And you can see it's pretty much from the lower left to the upper right here. We do kind of flatten out in the fall a little bit, but then there's a rise into year end. But what I'm really interested in is that green line. And this is a special way I've been, uh, I've been conducting these seasonality studies. For everything that's included in here, you have to have the exact same day of the week as it appears in this particular month. So for instance, this month started on June 2nd, and that was a Monday, and we're only going to include those years back to 1979 where June 2nd was a Monday. And that happens to be 1980, 1986, 1997, 2003, 2008, which was a global financial crisis, and also 2014. And what we see here is a bit of negative seasonality into early April. And that kind of matches, not to the extreme that we saw, but it matches what we saw this year. And so what I'm interested in in particular is what's happening in June. We do see a nice upslope here, and when we get to October, November, December, that's when we reach the rocky period. So the bottom line, if you put all of this together, and you put some stock in seasonality, uh, we probably have some smooth sailing perhaps until August, September, October, November, and then with the resumption of the uptrend, maybe in November and December, and that's if everything goes according to plan. And with all the geopolitics, who knows? We could get another bump up in volatility. But all considered, we do have a map for the year. So tune into Stocks and Translation for more jargon busting deep dives. New episodes on Tuesdays and Thursdays on Yahoo Finance's website or wherever you find your podcast.