Forget “Sell in May” – This Could Be the Summer of Small Caps

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It happens every year like clockwork.

The calendar flips to May, and the financial media starts trotting out the same tired advice: Sell your stocks and go away until fall.

I’ve never been a fan of this. And this year, I think following that advice could be one of the most expensive mistakes you could make.

In today’s Market 360, I want to explain why I think “sell in May” is exactly the wrong call this year. Then, I’ll make the case for what I believe could be what I call “the Summer of Small Caps.”

I’ll also tell you how to get your hands on an exclusive watchlist of small-cap stocks I’ve got my eye on, as well as how to gain access to my highest-conviction small-cap picks in Breakthrough Stocks. I shared all the details at my recent 10X Fed Shock event last week – and tonight at midnight is the last chance to view it. So, let’s not waste any time – let’s dive right in.

Where “Sell in May” Comes From

First, a little history – because I think it’s worth understanding where “sell in May” actually originated.

It didn’t start on Wall Street. It started in London in the 19th century. Back then, wealthy British financiers and stockbrokers would leave the city’s sweltering streets every summer for extended vacations in the countryside.

That means trading volumes dropped. Markets went quiet. And stocks tended to drift sideways or lower until the money men returned in the fall.

The full saying was actually: “Sell in May and go away, come back on St. Leger’s Day.”

The St. Leger Stakes is a famous fall horse race, the final leg of the British Triple Crown, dating back to 1776. So essentially, wealthy bankers were telling each other to check out of the market until the horse races in September.

When this phenomenon was imported to Wall Street, it stuck. And for a while, it actually worked. From 1950 to about 2003, the data more or less supported it.

But here’s the problem with that. Once everyone knows a system, it stops working. That’s true of trading strategies, market adages and everything in between.

What the Data Actually Shows

Now, I’ll be fair. The summer months are not uniformly strong.

August and September remain two of the weakest months on record. In the past 20 years, the S&P 500 has produced an average return of just 0.05% in August and negative 0.67% in September. They’re positive only about half the time.

Frankly, if I were in charge, I’d close the market for the entire month of August every year. That’s when the “A-team” heads to the Hamptons or jets off to Europe for vacation. The “B-team” gets left in charge, and the markets tend to drift without the pros at the helm.

But here’s where the conventional wisdom breaks down. If you narrow the May through October window and look at the past 20 years, July has actually been the market’s best month overall – rising 2.54%. Not November. Not April. July.

So “sell in May and go away” doesn’t just leave you on the sidelines during the weak months. It leaves you sitting out some of the best trading days of the year.

The Summer of Small Caps

Now, here’s where you could really go wrong if you follow the “sell in May” crowd this year.

Remember, the S&P 500 only tracks large-cap companies.

But right now, the small-cap Russell 2000 index is on fire. And I think this summer is going to be one of the best periods we’ve seen for smaller stocks in years.

See, while everyone was focused on the Magnificent Seven and the AI mega-cap trade, a quiet rotation has been playing out in smaller companies.

Over the past year, the Russell 2000 is up 31%, compared to 23% for the S&P 500. And year to date, small caps are continuing to lead, up 11% versus the S&P 500’s 7.7%.

What makes small-cap companies interesting right now is that they are predominantly domestic. They don’t have the global exposure that makes large caps vulnerable to currency swings, geopolitical turbulence and foreign economic slowdowns.

When the U.S. economy is growing, and right now it is, small caps tend to feel it most directly.

But here’s what makes me even more excited. Small caps are still cheap relative to history. They currently represent just 4.6% of the total Russell 3000 market cap, well below the historical average of 7.6%. The valuation gap between small caps and large caps remains significant even after this rally.

In other words, the move has started. But it’s nowhere near over.

After years of playing second fiddle to the mega-cap tech trade, capital is rotating toward smaller, domestically focused companies with real earnings growth and real exposure to the U.S. economy.

And if you want to talk about seasonality, just look at the chart below. It shows that July has been the second-strongest month for small caps over the past 20 years, producing a 2.36% return.

That’s right around the corner, folks.

The Best Place to Find the Next Winners

Bottom line: This is not the summer to be sitting on the sidelines.

The small-cap opportunity is real. But you can’t just buy the iShares Russell 2000 ETF (IWM) and walk away.

You need to find the right ones.

My Stock Grader system was built to do exactly that. It evaluates roughly 6,000 stocks every week on two signals: the health of the underlying business and whether institutional money is beginning to move in quietly ahead of the headlines.

When both signals fire together and keep firing month after month, I pay close attention – because the gains usually follow.

By incorporating Stock Grader into my Breakthrough Stocks service, where I focus on small- and mid-cap companies, my subscribers are sitting on 11 triple-digit gains out of 29 holdings.

Every one of these was a smaller, underfollowed company when my system flagged it. Every one was too small for the biggest Wall Street funds to touch. And every one showed the same early combination of strong fundamentals and buying pressure before the crowd showed up.

The next group is already out there. In fact, my system has flagged 53 stocks showing those same early signals…

Last week, I hosted my 10X Fed Shock event, where I laid out the full case for why I believe this is the most significant small-cap opportunity I’ve seen in decades. I shared my highest-conviction picks from those 53 stocks. And I gave away one name for free just for attending.

Your chance to watch a replay closes at midnight tonight.

Go here to watch the replay now.

Sincerely,