Russell Index Forecast

Are Russell Small Caps a Wise Choice in 2025?

Stock market analysts and market economists have been talking about a market broadening for some time. The gist of their forecasts revolve around investment flows into small caps, which are fundamental to what the Russell 2000 index is — an index of stocks that are not large caps.

The Russell 2000 index represents a comprehensive small-cap barometer and is reconstituted each year to ensure its larger stocks don’t distort the value and meaning of this true small-cap group of equities.  However, the Russell 2000 could be renamed the not-S&P500 index. Investors look to it at times for the best small cap stocks to buy. assuming they’re ready for big earnings growth with an improving economy.

Most Americans are of the mind that the economy will improve under Trump with deregulation, lower taxes, import tariffs, and low government deficits, with an overall Pro-US agenda.  However, the economy can’t adjust fast enough.  With supply chains and sources in jeopardy, there’s little reason to believe we will escape a recession.  Of course, Trump could back track on tariffs?

Mega Corporations Like Things Just the Way They Are

Analysts and forecasters alike (e.g., Tom Lee forecast) have predicted Russell small caps could double in value in the next year.  Yet the reality is running out of time.   Large caps such as Googl, Nvidia, Meta, and other Mag 7 level stocks are doing well, and seem much safer for the time being. I think the issue is the power the giant corporations have over politics and the economy. They’re thriving in a high rate environment where smaller companies can’t gain any traction, stuck in 2nd place forever. If President Trump to look solve this Megacap unfairness, then the outlook for small caps is overstated.

This chart courtesy of Google Finance clarifies how the Russell hasn’t really gone anywhere in the last 5 years. Experts on the media such as CNBC, pushed the idea of market rotation, but it’s never happened. And now with the Tump tariff retaliation likely, these small caps face an even bigger risk should we see the US stock market collapse.

High interest rates cripple the earnings performance of small-caps and small-cap stock prices.  The US Fed hasn’t quite lowered the FED main lending rate sufficiently yet to ease the pressure on smaller companies. And America’s small businesses as well, continue to face tough conditions. It may not be till spring 2025 that we see better conditions for all. Still, the specter of a global tariff war led recession looms.

However, stock prices are valuations of future value and the Russell 2000 index trend upward with the additional Trump trade boost, shows investors are buying into the idea that small caps might be the best bet for 2025.

We have some history to review too. The Russell rose 60% during President Trump’s term in office, up to the Covid pandemic collapse.  The outlook was promising until the Trump tariff threats, which although good for the US economy in the short term, will lead to a trade war and diminished trade for the US.

Why Would Money Rotate into Small Caps?

The reasoning for the Russell 2000/3000 small-cap hype is due to the expectation of lower interest rates which would benefit small businesses who would see lower financing costs.  And of course, small business customers would have more to spend thus driving higher revenues for SMBs.

Investors believe a broadening of the stock market will happen and that investors will sell their S&P megacaps and buy small caps. It means the price of Amazon, Google, Microsoft, Tesla, Netflix, Apple and others might fall drastically. Since those stocks make up most of the S&P and NASDAQ, we’d expect the outflows would lead to a drastic decline. But the safety of the big caps is alluring, and many investors will become risk off soon. They’ll be looking for hedging strategies and even to sell short.

This interview is from one year ago on CNBC where the host says the “Wexword” is rotation. What do you think at this point right now, as the latest inflation report came in hot again?

Investing in small caps entails some risk such as:

• volatile prices due to lower capitalization and lower prices
• high risk due to lower capital reserves and need to borrow from credit markets
• exposure to foreign supply chains
• less liquid because fewer investors know about them and are willing to buy them

Best Russell 2000 Stocks to Buy?

Bitcoin jumped to a record high today at $86,000 and it shouldn’t be a surprise that cryptocurrency companies (i.e., bitcoin stocks) are leading the way in the Russell index. As you can see in this Barchart top small caps of the day chart, Microstrategy and Coinbase lead the way, along with the new surprising upstart, Affirm Holdings. Affirm, a buy now pay later payment platform is big news.

Top Performing Russell 2000 Stocks (Barchart)

From the RT 2000 group, it’s a good range of companies that have seen their stock price rise. Here Barchart shows growth in the last month with Bioscience stocks leading the way.

Validea offers its best Russell 2000 picks:

Growth of the Russell 2000 as you can see rivals that of the S&P in the last 3 months.  The Dow Jones has lagged as well, which sets up an interesting combination with the small caps if you can find those stocks that will benefit when manufacturing returns. As this chart from Yahoo Finance shows, shows the Russell is back leading the pack. With lower interest rates and a flood of money coming in from the money markets and foreign investors, it’s difficult not to see the Russell doubling. Of course, the timeline is anyone’s guess, based on politics.

What is the Russell 2000 Index?

The Russell 2000 index is a gauge of the 2000 smallest market cap stocks in the Russell 3000 index. There is also a Russell 1000 index. The 2000 index seems to be a better gauge of the real economy and of how small businesses are faring.

The Russell 2000 index (US Small Cap 2000) is a the leading global index in the US, created in 1984 by the Frank Russell Company, which is part of the London Stock Exchange.

See more on the outlook for the best stock market sectors and in-depth views of critically important market data and news.

*  investing in stocks entails risk. Ensure you’re well informed before investing serious amount of funds into small caps or mega caps. Finding a qualified investment advisor is a good choice, although be aware investors have lost large amounts upon the investing advice of licensed advisors.  Stock prices vary by day and month and individual companies may suffer unforeseen setbacks.  Day trading and speculation are very risky. Read more on the 6 month, 5 year and long term outlooks to get a broader look at where markets are headed. It’s your money, get the broadest view of the economy, sectors and stocks.

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