^RUT | 2307.45 | +1.07% IWM | 228.53 | +1.02% Data not available.
While the Dow Jones has dropped roughly 5.7% from its peak, the Nasdaq 100 has dropped 6.3%, and the S&P 500 is down around 7% from its all-time high. The Russell 2000, which tracks 2000 small-cap stocks in the US, has underperformed these indices and is currently down about 30% from it’s high in2021, which might spark some questions, with the most important ones being “why is that?” and “will it bounce back?”.
Why isn’t Russell 2000 going up?
To find the answer to that question we have to look back a while. in 2022, we have witnessed a bear market, primarily due to rising interest rates, inflation, the conflict in Ukraine, and fears of a possible recession. Silicon Valley Bank collapsed in March of this year, making it the third largest bank failure in US history. Investors were concerned about the bank’s clients because it was lending money to many start-ups and small businesses; among the companies impacted by the bank’s collapse were Etsy, Roku, and Roblox. Russell 2000 experienced a greater decline than other indices because of its increased exposure to financial services and technology. Higher interest rates also increase the cost of borrowing, which makes it more difficult for smaller businesses to survive.
Will it come back?
If we zoom out we can clearly see that Russell 2000 is trending upwards however, it has moved in a horizontal range for the about one and a half year. From the technical standpoint if it breaks through the support below $160 zone we could potentialy see another leg down, if we however experience a move up the $200 level will be worth watching.
Fundamentally it really depends on multiple factors, some analysts predict recession is unlikely while others disagree, historically the market has fallen after Fed started cutting interest rates as that’s where recession started multiple times and although It’s unlikely FOMC will decide to cut rates during the next meeting, a cut by June is already priced in according to Bloomberg.
What about volatility?
The RVX, or the CBOE Russell 2000 Volatility Index, is currently at 19.91. This index measures the market’s expectation of 30-day forward-looking volatility for the Russell 2000 Index. In terms of whether this is high or low, it’s important to consider it in the context of its historical levels. For instance, the RVX has ranged from 17.78 to 39.14 over the past year. Therefore, we may interprete the current level of 19.91 as relatively low compared to this range indicating that the market does not anticipate greater volatility in the coming weeks.
If you can’t handle higher risk, investing in the Russell 2000 index may not be a good idea because its volatility may be higher than that of its larger counterparts. Always remember to DO YOUR OWN RESEARCH! Also, if you found that article interesting check out our other posts and consider subscribing to our newsletter.