What’s happening: The Russell 2000 index has risen 57% since its low in mid-March. The S&P 500 is a 52% rally.
Yet success in a sharp recession has not been universal. Many smaller businesses have less variety in revenue sources, allowing them to be more exposed to the adverse effects of restrictions and lockdowns, said Charles Day, director of UBS and advisor to private wealth.
While the S&P 500 peaked last week, the Russell 2000 has not reached a new record since 2018. And with a market value above $ 2 trillion, Apple is now worth more than the entire index.
“The future of Russell 2000 depends on how fast we get a vaccine and how quickly people get a vaccine,” Day said.
Professional investors like Day advise clients to invest in smaller companies, even if megacap tech gets all the attention.
“We continue to like small caps here, and think that Russell’s recent achievements (even without a new height) are more important than the S&P record close,” said Nicholas Colas, co-founder of DataTrek Research, in a recent note to clients.
He pointed out that the Russell 2000 is heavy weight for health care and tech supplies that can stand to benefit from the early stages of recovery.
“The Russell 2000 is a ‘real’ take on the US economy beyond the S&P 500 and must therefore continue as the country makes its way out of the [Covid-19 crisis], “Said Colas.
View this space: The Russell 2000 is not the only index of small stocks on the rise. The Russell Microcap Index, which includes some of the smallest U.S. public companies, is up 65% from its low March.
That said, since 2010, the Russell 2000 has risen 148%, while the S&P 500 has risen by 205%. The tech-heavy Nasdaq is nearly 400% higher.
A virtual meeting of very important central bankers
The annual meeting of central bankers in Jackson Hole, Wyoming, may be virtual this year, but it’s ready to get more attention than ever.
On the docket: Federal Reserve Chairman Jerome Powell will speak Thursday at the Jackson Hole Economic Policy Symposium, which will be livestreamed.
He will discuss the results of the bank’s highly anticipated framework review, which may result in a change in the central bank’s approach to inflation. There has been talk of loosening the 2% inflation target to facilitate more necessary monetary policy.
Why it matters: The Fed’s approach to monetary policy is particularly relevant to investors given the extent to which its actions are driving markets.
“We see the stock rally as primarily driven by central bank policies of adding unusual liquidity to markets through renewed quantitative easing and ultra-low rates,” Mark Haefele, chief investor at UBS Global Wealth Management, told clients in a note Thursday.
Shares fell last week after the central bank issued minutes of its July meeting, which raised continuing concerns about the health of the economy, as language indicated that it may no longer support aggressive stimulus measures in the near future.
“The commentary suggests a persistently weak economic backdrop that keeps inflation low, however, there is not a bit of a tendency to offer additional threatening support to the economy,” said James Knightley, chief international economist at ING.
After taking rapid interest rate hikes closer to zero in March, the Fed added trillion dollars to assets to its balance sheet when launching emergency loan programs. The question now is what more it will do to provide support.
Next
Tuesday: US new home sales and consumer confidence; Germany business climate; Best Buy, JM Smucker, Nordstorm, Salesforce and Urban Outfitters revenue
Wednesday: U.S. durable goods data; Dick’s Sporting Goods Revenue
Thursday: Jackson Hole Symposium kicks off; Initial U.S. unemployment claims; Abercrombie & Fitch, Coty, Dollar General, Dollar Tree, Tiffany & Co., Dell, Gap, HP and Ulta Beauty Revenue
Friday: U.S. personal income and expense data
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