Russell 2000 - rolling over?
US stock index futures began the week on the front foot this morning. All four majors were trading in positive territory, shrugging off a mixed close on Friday night, and a generally disappointing week. Only the tech-heavy NASDAQ registered a gain last week, and this was just a modest 0.3%. The S&P 500 lost 0.6%, while the Dow and Russell 2000 lost 1.8% and 2.7% respectively. In fact, a look across the daily charts suggests that, while the NASDAQ displays upside momentum as it continues to hit fresh record highs, the S&P is now consolidating, and the Dow and Russell 2000 maybe rolling over, following an exceptionally strong bullish run. In some ways it’s surprising that the domestically-focused, mid-cap Russell should be in decline, given that small business optimism has surged higher since Donald Trump’s decisive election victory in early November. The news saw the Russell finally post a new record high, three years after the last one, as investors priced in the prospect of deregulation and a favourable tax environment. Perhaps some profit-taking should be expected after the Russell’s outperformance in November. But if that’s all it is, then buyers should soon turn up to take advantage of cheaper prices. Following last week’s inflation data, the consensus expectation is that the Fed will announce a 25 basis point interest rate cut following the close of its two-day meeting on Wednesday. If so, that would mean the Fed has cut by 100 basis points this year, or more accurately, since September. This is short of 150 points priced in at the beginning of the year, yet it has still provided a strong tailwind for equities in 2024. As things stand, the Fed is forecast to cut by a further 50 basis points next year, although much depends on inflation resuming its previous downward trend. In other news, Palantir and MicroStrategy have jumped higher following their inclusion, along with Axon Enterprises, in the NASDAQ 100. Super Micro Computers, Illumina and Moderna are all out.
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