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Last week, the Russell 2000 reached a new all-time high from its peak in 2021. It followed the Fed’s monetary policy easing, which sparked investor confidence in small-cap stocks and boosted hopes for economic growth support.
Small Caps Steal the Spotlight
The Russell 2000 index, which consists of 2000 small-cap US stocks, with market caps ranging between $250 million and $2 billion, surged 2.4% to close at 2,450. The index rose above its previous record high of 2,443 in November 2021.
Small-cap stocks are tied to the economic cycle of the US even more than Big Tech, which usually grow during times of low interest rates. The Fed’s 25 basis point rate cut on September 17th, along with two expected rate cuts this year ignited the rally. ⁽¹⁾
A Volatile Journey for Small Caps
The Russell 2000 soared nearly 150% from mid-2020 to late 2021. Then, the rise stopped in 2022 due to an inflation and interest rate shock, which led the Fed to raise rates aggressively. Global markets faced high volatility during this time and the Russell 2000 entered a bear market.
High interest rates and tariffs have weighed heavily on small-cap stocks, leaving them behind, while large-cap indices such as the S&P 500 and the Nasdaq 100 surged on AI innovation. Now that rate cuts are back on the table and tariff concerns are fading, small caps have continued to rise, signaling positive investor sentiment around economic growth. ⁽²⁾
Tech Joins the Rally
While small caps led, some major tech stocks also gained. Intel shares soared 22.8%, its best day in nearly 38 years after Nvidia announced a $5 billion investment to co-develop chips. Nvidia itself rose 3.5%. This shows that while small caps are the focus, broader market optimism is lifting multiple sectors.
Why Small Caps Matter
The Russell 2000, launched in 1984, was one of the first market indexes devoted to small-cap stocks. With about 2,000 companies on the index spread across a handful of industries, the Russell 2000 could also give clues about how the US economy is performing. ⁽³⁾
Still today, it’s arguably the most famous market index for US small-cap stocks, which some traders and investors like to track for their historical growth. It’s also helpful for small-cap stock traders and investors who can buy shares of funds that track the Russell 2000’s performance.
What’s Next?
The Russell 2000’s new record highs could indicate a continuation of the bullish outlook driven by the Fed’s change of stance to lower rates. As economic conditions are set to improve following the recent rate cut, small caps could continue to outperform. However, because of its sensitive impacts to market and economic changes, small-cap stock traders and investors will continue monitoring Fed policy and economic data.
