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
Open account Try demo Download mobile app Download mobile app
Source: xStation5
This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.
