Looking to the Futures
Small Caps Stumble: Russell 2000 Slides from Record Highs

On Tuesday, the Russell 2000 Index reached new heights touching 2488.84 and closing at 2457.51, surpassing an almost 4-year record close. These prices had not been seen since the Index reached 2466.49 on November 25th, 2024, and its previous record close of 2442.74 set back in November 18th, 2021. These highs, however, have been short lived so far as prices have pulled back alongside the broader market throughout the week. The front month Russell 2000 Futures (/RTYZ25) saw a peak on Tuesday of 2510.3 before retreating 2 straight days and closing at 2430 on Thursday.
Often referenced as a potential indicator of US economic health, the small-cap Index captures a segment of the economy that often drives innovation and growth. The Russell-2000 has enjoyed a strong uptrend since the April lows as the potential for Federal Reserve rate cuts spurred optimism amongst traders. With the Federal Reserve implementing a 25-basis-point during their September meeting and signaling that potentially more are on the way by year end, the Index had what it needed to achieve new heights. Due to smaller cap companies having relatively higher exposure to floating-rate debt compared to larger cap corporations, the potential for more rate cuts in the coming months could benefit these small caps disproportionately.
Another reason why some traders have been enthusiastic about the potential within small caps is how they are positioned regarding revenue orientation. When compared with the Russell 1000 Index, which is a stock market benchmark representing the 1,000 largest U.S. companies by market capitalization, according to data from the FTSE Russell less than 20% of the Rusell 2000 Index's revenues are generated from outside the U.S. compared to around 40% within the 1000 Index. This along with generally more modest valuations and forward price-to-book ratios among small caps compared with large caps, has created an opportunity for these smaller cap companies to potentially benefit from a U.S. led economic rebound. With inflation fears lingering and uncertainty about the state of the economy and the Fed's next move, it is yet to be seen if this optimism around future rate cuts and economic growth will persist.
Traders will be intently watching the release of crucial inflation data Friday morning as the Fed's preferred inflation measure, August's personal consumption expenditures price index, will be announced. All 3 major U.S. indexes fell on Thursday after solid jobs data showed fewer jobless claims and an upward revision to the second-quarter GDP print (3.8%), sparking concerns that the Fed may have less of a reason to cut rates with positive news to the state of the economy. Week to date, the Russell 2000 Index is down about 1.54%, the S&P 500 down nearly 0.9%, the tech-heavy Nasdaq Composite has retreated about 1.1%, and the Dow Jones has shed around 0.8%.
Technicals
Looking at the daily chart for /RTYZ25, prices have retreated by 80.3 points on the close on Thursday from its record high of 2510.3 on Tuesday. Prices continue to remain steady and fairly high off the 50,100, and 200-day Simple Moving Averages. On 8/6, we saw what many traders describe as a "Golden Cross" on the /RTY chart where the 50-day moving average crossed above the 200-day, indicating a potential bullish signal, which in this case did prove to be true. Price action has continued to trend higher holding above the 50-day and is yet to be retested in the month of September. The 14-day RSI (Relative Strength Index) has retreated from the 70 levels seen earlier this month and closed at 56.5049 on Thursday, demonstrating moderate momentum but a rather neutral zone.
According to the CFTC Commitment of Traders report released on September 16th showed Dealers decreased their long positions by -8,751 contracts and decreased their short positions by -11,456 contracts. Asset Managers were seen to have decreased their long positions by -926 contracts and decreased their short positions by -5,261 contracts.



Economic Calendar
Friday, September 26th:
8:30 am ET - Personal Income
8:30 am ET - Personal Spending
8:30 am ET - PCE Index
8:30 am ET - PCE (year-over-year)
8:30 am ET - Core PCE Index
8:30 am ET - Core PCE (year-over-year)
9:00 am ET - Richmond Fed President Tom Barkin Speech
10:00 am ET - Consumer Sentiment (final)
1:00 pm ET - Fed Vice Chair for Supervision Michelle Bowman Speech
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