Small stocks are making big moves this month, which could signal good news is ahead for Wall Street. The Russell 2000 , which is made up of small-cap names, is 7% higher in June. In contrast, the S & P 500 is up only 2% in that time. This would also be the Russell 2000’s first monthly advance since January, when it climbed 9.7%. A chunk of this month’s gains came Friday, when the index popped more than 3% for its best day since November. The small-cap benchmark’s rally comes as investors worry about only a few artificial intelligence-related stocks rising while the rest of the market struggles. A breakout in small caps could point to broader market participation. These moves have “offered hope, and lent a hint of support, that market breadth was on the cusp of broadening,” LPL Financial chief global strategist Quincy Krosby said in a note. .RUT 1M mountain Russell 2000 in past month “Moreover, small-caps have traditionally served as a bellwether in terms of the broader economic landscape,” Krosby added. “With all the ongoing debate regarding the state of the economy, and concerns about an impending recession, steady interest in small-caps suggests the economy is more resilient than the headlines imply, or that a recession could be milder than initially projected.” Indeed, recent data points toward an economy that’s on more solid footing than many expected at the start of the year. Last week, the Bureau of Labor Statistics reported the U.S. economy added 339,000 jobs in May — way more than expected. There are some risks surrounding small-cap stocks, including the potential for more Federal Reserve rate hikes, which could put more pressure on the group relative to large-cap names. On top of that, Wolfe Research strategist Rob Ginsberg warned the Russell 2000 could run into some technical resistance after the recent rally. “On the cusp of overbought, the RTY is approaching heavy resistance in the 1900-1950 zone,” Ginsberg added. “Longer-term, we could see them working on a relative basis, but if small caps are going to reverse short-term and consolidate, this is the spot.” That said, there are ways investors can try to capitalize on the small-cap rally. How to play it CNBC Pro screened the Russell 2000 for stocks that met the following criteria: Buy ratings from at least 60% of analysts covering them. Average potential upside of 40% or more. Market cap of at least $1.5 billion. Close at, or above, $10 per share in the previous session. Here are the names that made the list. Solar energy stock Sunnova Energy made the list. The stock is down slightly year to date but has rallied more than 13% in the second quarter. More than three-quarters of analysts rate it a buy, and the average analyst price target implies upside of nearly 90%. NOVA YTD mountain NOVA in 2023 Another name that made the cut is educational software company PowerSchool . The stock has buy ratings from 71% of analysts. On average, it’s expected to rally 41%. PowerSchool shares have struggled this year, losing more than 19%. However, they are still up nearly 42% over the past 12 months. A slew of health-related stocks also made the list, including Beam Therapeutics, Rocket Pharmaceuticals and Arrowhead Pharmaceuticals.
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