MW Small-cap stocks on verge of ending 3 years of futility with record run - if it holds
By Christine Idzelis
The small-cap-focused Russell 2000 has posted a double-digit percentage gain so far in November
Small-cap stocks jumped Monday to just shy of an all-time high and are on track for their biggest monthly gain of the year, as investors look to close out November in a trading week shortened by the Thanksgiving holiday.
The Russell 2000 index RUT, a measure of U.S. small-cap equities, has climbed 11.2% so far in November, putting it on course for its largest monthly jump since last December, according to FactSet data. Small-cap stocks are broadly catching up to the S&P 500's SPX year-to-date gain.
The Russell 2000 has blown past the 4.9% month-to-date rise of the S&P 500, the widely followed U.S. large-cap equities benchmark, FactSet data show. Small-cap stocks seem to be getting a lift lately from investor expectations that President-elect Donald Trump's policies will be pro-growth, partly because of expected tax cuts.
Small-cap stocks are well represented by "domestically focused, economically sensitive" areas of the market that investors expect may "thrive under Trump," including sectors like financial services, basic materials, consumer cyclicals and real estate, according to comments from Morningstar Indexes strategist Dan Lefkovitz in a note earlier this month.
Jefferies analysts said in an equities report days after the Nov. 5 presidential election that the path of interest rates will influence the sustainability of the rally in small-cap stocks seen after the election.
See: Small-cap stocks are smoking the S&P 500. Bond yields may hold the key.
Rates in the bond market fell Monday. The yield on the 10-year Treasury note BX:TMUBMUSD10Y, a benchmark rate for valuing stocks, declined 14.7 basis points to 4.262% for its biggest daily drop since Aug. 2 based on 3 p.m. Eastern time levels, according to Dow Jones Market Data.
Small-cap stocks rallied sharply Monday as Treasury rates retreated, with the Russell 2000 gaining 1.5% to close at 2,442.03, FactSet data show. That surpassed the S&P 500's modest 0.3% rise Monday and left the Russell 2000 just slightly below its record close of 2,442.74 from Nov. 8, 2021, according to Dow Jones Market Data.
Meanwhile, the S&P 500 has notched a series of all-time peaks this year, logging its 51st record close of 2024 on Nov. 11.
Based on historical gains, the Russell 2000 may rise next month, according to Dow Jones Market Data. The chart below shows the Russell 2000 has posted a stronger average performance in December than the S&P 500 , Dow Jones Industrial Average DJIA and Nasdaq Composite COMP.
The Russell 2000's average return in December is 2.8% - its best average for any month, according to Dow Jones Market Data.
While the Russell 2000 still trails the S&P 500's 25.5% rally so far in 2024 by about 5 percentage points, exchange-traded funds targeting growth areas of the small-cap equities universe are closer to matching that year-to-date gain.
Shares of the Vanguard Small-Cap Growth ETF VBK, which tracks an index of U.S. small-cap growth stocks, has climbed 24.8% in 2024 through Monday, while the iShares Russell 2000 Growth ETF IWO has posted a 24.7% gain over the same period, according to FactSet data.
The U.S. stock market will be closed on Thursday in observance of the Thanksgiving holiday.
-Christine Idzelis
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(END) Dow Jones Newswires
November 25, 2024 17:16 ET (22:16 GMT)
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