Beat The Market With The Best Small-Cap Stocks Of May

May was an eventful month characterized mainly by Trump’s anti-trade policies, which reignited investors’ love for small-cap stocks. In fact, the Russell 2000 index hit multiple record highs last month and easily outperformed the large-cap rivals, gaining 6% vs. 2.2% gains for the S&P 500. This marks the biggest monthly gain for the small-cap index since September.

The outperformance mainly came on the heels of fading trade talks between the United States and China, Trump’s decision to re-impose sanctions on Iran, and now the initiation of steel and import tariffs on America’s biggest allies — the European Union, Canada and Mexico — which were previously exempted from the duties, since these were announced in March. Thanks to Trump, all these developments could trigger a global slowdown and roil the broad stock market.

However, one corner of the investing world -- small cap -- is less prone to these events. This is because the pint-sized stocks are closely tied to the U.S. economy and do not have much exposure to the international market. These are insulated from international headwinds, including trade policy and geopolitical tensions, and are considered safe and better plays if political issue or economic turmoil creeps into the picture.

Additionally, small-cap stocks are also well protected from a stronger greenback. Strong earnings and tax cuts also supported the rally. Small-cap stocks pay higher taxes than large-cap companies and are thus the biggest beneficiaries of a tax cut. An encouraging domestic economic trend also backed their momentum. The U.S. economy has entered its second-longest expansion phase since 1785, thanks to higher consumer spending, rising consumer confidence, low borrowing cost, growing wages and solid hiring. In particular, consumers were more confident in April, with consumer confidence index rebounding to an 18-year high, indicating solid economic growth prospects.

The bullish trend is likely to continue at least in the short term. Given this, investors might want to tap the space, although small-cap stocks are more volatile and carry the risk of huge losses in unfavorable market conditions. As such, we have highlighted five top-performing small-cap stocks of May that are poised to outperform as long as geopolitics keep perturbing the stock market. These stocks have a top Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Score of B or better. 

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

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