A combination of government policy relief and the “data vacuum” resulting from the federal government shutdown helped propel small-cap stocks to a rare outperformance in November 2025.

The S&P SmallCap 600 gained 2.4% for the month while the S&P 500 dipped 0.04%, bucking the trend of large-cap tech stock domination that has characterized most of the 2025 year. 

Perhaps the most defining “non-event” of November was the lack of official government economic data. Due to the government shutdown, the Bureau of Labor Statistics (BLS) did not release the official October Employment Report or the October CPI inflation data. 

This information vacuum caused investors to rely on private sector data (like ADP payrolls) and sentiment instead of reacting to potentially hot inflation prints or volatile jobs numbers. Following a “no news is good news” playbook, the lack of negative data allowed “rate cut hopes” to run unchecked, thus fueling risk-on sentiment for small-cap stocks.

Two other developments this month directly benefited smaller companies.

First, the surprise tariff relief that arrived in early November served as a tangible positive catalyst for small caps. The White House’s trade deal included removing ten percentage points of the cumulative tariff rate on Chinese imports.

Since small-cap companies often lack the complex supply chains of large multinationals, they are more sensitive to import costs. The tariff reduction directly lowers input costs and improves margins for many companies, and this sparked a rally in manufacturing and retail-heavy small caps.

Secondly, despite the lack of official CPI data, the market moved aggressively to price in a Federal Reserve interest rate cut for December, especially after the ADP Employment Report showed private sector jobs grew by only 42,000 in October, signaling a cooling economy.

As small companies carry more floating-rate debt than large caps, the intensified belief that “cheaper money” is coming in December acted as rocket fuel for the sector, particularly for regional banks and real estate stocks.

Regional banks and financial service companies surged on the “steepening yield curve” amid hopes that lower rates will revive loan demand and reduce balance sheet pressure.

Energy companies also benefited from geopolitical stabilization in the Red Sea/Gulf of Aden and “soft landing” hopes that imply sustained fuel demand. 

Reduced fears of supply chain bottlenecks and shipping cost spikes also eased pressures on smaller companies that cannot negotiate long-term shipping contracts like Walmart or Amazon

Small-cap biotech and healthcare firms lagged the broader rally, though, with a growing divergence between “value” and “growth” sectors beginning to emerge in the month.

In the near term, investor psychology and market sentiment will likely continue to be the key drivers of equity performance, but over the long-term fundamentals will always win out. Quality companies like those featured in the SmallCap Informer will eventually reap benefits for savvy and patient investors.
 

In this issue of the SmallCap Informer, we introduce a financial services firm that serves a vital American industry but also provides a modicum of defensive positioning.

Stay the course!

• DOUG GERLACH

Subscribers can read Doug's complete commentary and the in-depth profile of our recommended small company stock in the current issue of the SmallCap Informer stock newsletter. Not a subscriber? Subscribe to the SmallCap Informer and get monthly small company stock recommendations and updated buy/sell prices for each of the ~40 high-quality small company stocks currently covered in the newsletter.