We’re used to seeing record highs from major indexes like the S&P 500, which has already set over 50 this year, and the Nasdaq-100 and Dow have also added dozens of their own. But on Monday, we heard from a long-lost friend — the Russell 2000. The once-mighty small-cap index, often overlooked in recent years, achieved something it hadn’t in three years — a fresh all-time high.

Russell’s resurgence: Some call it a reaction to President-elect Trump’s tame picks for economic leadership, while others chalk it up to the annual Thanksgiving trade. Either way, it feels like a holiday miracle. After a 1,114-day drought, the Russell 2000 finally hit a new all-time high — rebounding from a years-long collapse exacerbated by high interest rates, the end of pandemic-era stock speculation, and fears of a recession.

• From Nov. 2021 to Oct. 2023, the Russell 2000 fell over 33%, returning to pre-pandemic valuations as interest rates rose from near-zero to a 5.33% generational high.
• From its low in October, the index has gained momentum, with investors piling back in thanks to favorable valuations and the promise of lower rates — rallying over 45%.

Nowhere to Run

The Russell 2000 might have hit all-time highs, but some investors think it still has room to run. Broadly, the US stock market is now at its highest valuation in history. Even then, the risky Russell has become an optimal landing spot for profit-takers looking to bail on top-heavy stocks.

• Bloomberg’s Jonathan Levin notes that growth expectations for the Magnificent Seven stocks are beginning to ease, with their growth projected to trend closer to the rest of the stock market in 2025 and 2026.
• Meanwhile, the Financial Times observes that the Russell 2000 and the equal-weight S&P 500 have outperformed the base S&P 500 in the second half of the year, a sign that smaller names are now fetching bids.

Risky Russell’s risks remain: At a P/E ratio of 34x, the Russell 2000 is considerably more expensive than it was last year — and significantly richer than the Dow Jones (28.1x) and S&P 500 (24.7x). This means that, despite the shift away from pricey large-cap stocks, the Russell is still vulnerable to many of the same ills that made it sick in 2021. A second Trump administration could create an economic environment where interest rate cuts are delayed, inflation reignites, and any progress in the remaking of the Russell is undone.