RUS2000 hits the highest since 2022, more gains ahead?

• Russell 2000 outshines Nasdaq
   
• Fed rate cut expected by September
   
• Small-cap stocks drive Russell 2000 gains
   
• Nasdaq 100 flat as investors shift focus
   
• “Trump trade" speculation aids small-caps

The Russel 2000 Index has outperformed its tech-focused rival, the Nasdaq 100 Index, by nearly 12% over the past 4 trading sessions, as the market has become more convinced that the Fed may finally start cutting interest rates as early as next September.

At the time of writing, the aggregate probability of a September (18th) rate cut is 93.3% (source: CME FedWatch Tool).

What is the Russell 2000 Index (RUS2000)?

RUS 2000 Index - is a (float-adjusted, market-cap-weighted) stock market index consisting of ~2,000 small-cap U.S. companies. This index is widely regarded as a general performance barometer for US small-cap stocks.

As of 06/30/2024, the top 3 holdings of the index are Super Micro Computer (+213% YTD), Microstrategy Inc (+140% YTD) and Carvana Co. (+181% YTD).

RUS 2000 Index is mainly concentrated in industrials (18.9%), health care (15.1%) and financials (15.0%).

Meanwhile, the NASDAQ 100 is relatively flat as investors rotate into smaller stocks that are more sensitive to changes in the economy and overall market sentiment.

US 10-year bond yields fell to 4.16% and gold (XAUUSD) hit a new record high (~$2482.35).

The "Trump trade" may also be fueling this rally.
 

Despite the lack of concrete policy moves in Trump's potential second term, markets are anticipating tax cuts and an increase in tariffs. This could be beneficial for small and mid-cap stocks. 

On the technical side, however, the Russell 2000 may be poised for a technical pullback as the Relative Strength Index (RSI) has reached its highest level (~80) in the past 12 months (>70 - overbought; <30 - oversold).