US Small Caps Streak Ahead: Interest Rate Euphoria Gives America's Small Businesses A Boost
Portfolio Pulse from Neil Dennis
Following the Federal Reserve's indication of an end to its rate hike cycle, US small cap stocks have surged, with the Russell 2000 index reaching a 16-month high, up 6.8% since the announcement. The iShares Russell 2000 ETF (IWM) and the iShares Core S&P Small-Cap ETF (IJR) have also seen significant gains of 6.4% and 6.3% respectively. Small caps, which are more sensitive to interest rates due to typically higher debt levels, were previously oversold but have now outperformed large caps with a 22.4% rise since late October.
December 15, 2023 | 3:08 pm
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POSITIVE IMPACT
The iShares Core S&P Small-Cap ETF (IJR) experienced a 6.3% increase since the Fed's meeting, suggesting a favorable short-term impact due to the rally in small cap stocks and the ETF's focus on this segment.
As IJR is the largest and most liquid ETF tracking small cap stocks, the positive market response to the Fed's policy shift is likely to have a similar positive effect on IJR in the short term, mirroring the gains seen in the Russell 2000 index.
CONFIDENCE 80
IMPORTANCE 85
RELEVANCE 90
POSITIVE IMPACT
The iShares Russell 2000 ETF (IWM) rose 6.4% following the Fed's dovish stance on interest rates, indicating a positive short-term outlook for the ETF as it tracks small cap stocks which are currently rallying.
The IWM ETF closely follows the performance of the Russell 2000 index, which has significantly increased after the Fed's announcement. Given the positive reaction of the market to the Fed's dovish policy stance, the short-term impact on IWM is likely to be positive as well.
CONFIDENCE 80
IMPORTANCE 85
RELEVANCE 90