The Russell 2000 Is Plotting A Revenge Tour After Years of Underperforming Large-Caps — Here’s What It’ll Take
While the S&P 500 and Nasdaq 100 rallied over 24% and 27%, respectively, last year, the growth-flavored Russell 2000 only saw moments of brightness — and ended the year on a less desirable note, up just 11%. This gave the risky, small-cap index its fourth consecutive year of underperforming large-cap indices. But thankfully, Wall Street is reading the tea leaves for a potential Russell rebound in 2025.
- After the election, the Russell climbed as high as 21% YTD — setting its first all-time high in years, stirring optimism for a 2025 resurgence driven by lower interest rates and better economic conditions.
- Around 80% of Russell 2000 firms generate their revenue domestically, leading some investors to believe these companies will be insulated from the worst of Trump’s forthcoming trade war.
What do analysts expect? Through November, Schwab says that 45% of the Russell 2000 was unprofitable over the last 12 months, a figure which has grown alongside rising interest rates. For this reason, some investors have parked their money in mid-caps instead. However, analysts at Jefferies see 2,715 (+21%) by the end of 2025. But the index didn’t finish 2024 as strongly as investors had hoped — and even the typically bullish FundStrat has yet to make good on the 50% Russell rally it forecasted in Mar. 2024. For those considering the Russell 2000, the Vanguard Russell 2000 Index Fund offers exposure to the index with a low 0.09% expense ratio.
