Russell 2000 Index is bellwether for US economy

THE Russell 2000 Index refers to the stock market index measuring the performance of 2,000 smaller companies included in the Russell 3000 Index. Although it is not as popular as the commonly known US stock indices such as S&P 500, Nasdaq or Dow Jone Industrial Average (DJIA), the Russell 2000 Index can be regarded as a bellwether for the US economy as it reflects the performance of smaller companies focusing on the US market.

For the year to date performance, the Russell 2000 Index lags behind popular indexes. It is up around 12 per cent while Nasdaq is up around 20 per cent, the DJIA up around 17 per cent, and the S&P 500 up around 24 per cent.

Compared to larger market capitalisation firms, smaller companies are generally less diversified and rely on the US domestic market for business performance. Hence, these smaller firms might see more volatility in performance as a result of the US government and state-level restrictions to control the spread of Covid-19. This has also resulted in (investors) preference for strong mega-cap firms in terms of growth stability and sustainability in terms of revenue streams.