U.S. indices are recording a powerful upward rally, with the Russell 2000 increasingly 'boldly' joining in; the index of small and medium-sized U.S. companies, which had been doing less well than the Nasdaq or the S&P 500 for months. Today, the benchmark Russell 2000 (US2000) futures are seeing the strongest gains of all U.S. index contracts. In 2016, when Trump won the election, it was the Russell that became the biggest 'beneficiary' of the victory, subsequently doing better than the S&P 500 for many months. Investors are hoping for a repeat of this scenario and for smaller companies to return to the Wall Street playbook.
- Interest rates in the U.S. have already fallen by 75 bps since September, supporting the momentum of smaller companies, and it is likely that policy in the U.S. will loosen further, including in 2025, where the market is pricing in about 100 bps of cuts. More dovish monetary policy, with a fairly strong U.S. economy and possible 'fiscal support' seems to support the Russell 2000.
- This, along with Trump's proposed changes, which include tax cuts, tariffs, and pressure to 'consolidate' US business in response to 'new circumstances' in global trade, a number of smaller, US companies could face the chance for a significant uptick.
- On Wednesday alone, the index rose more than 5% after the election. This clearly shows how high the market's hopes are for Trump's win and improved sentiment among smaller companies. Currently, this upward momentum is continuing, and since the beginning of the year, the Russell is up almost 20%, still less than the S&P 500, which has gained 26%
- The multiples, average valuations of companies in the Russell 2000, indicate undervaluation relative to larger counterparts. For example, the price/earnings ratio for the Russell 2000 is 17, compared to more than 30 for the Nasdaq and 22 for the S&P 500, where the historical average is in the vicinity of 19. Lower valuations, with improving circumstances for smaller companies, is another factor that could steer capital toward the benchmark.
US2000 chart (D1 interval)
Russell 2000 futures have approached levels equal to the 2021 maximums, at 2435 points; they are gaining almost 1% today. Markets have a clear 'appetite' for new historical maxima. US2000 has approached the upper limit of the price channel. Medium-term support is around 2150 points, where we see the SMA200 (red line) and the lower limit of the channel, as well as the 38.2 Fibonacci retracement of the 2023 upward impulse.
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile app
Source: xStation5
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
