On Tuesday morning, the Russell 2000 (^RUT) small-cap index was slightly declining, having fallen nearly 3% over the previous five days (as of this video’s posting). With Wall Street investors and retail traders fluctuating between tech and small-cap stocks, are there additional catalysts that could further influence this trend? Mike Reynolds, Vice President of Investment Strategy at Glenmede, identifies two primary driving forces for the small-cap market: fairer valuations and optimistic earnings growth projections for 2025. “As we approach 2025, we anticipate significantly improved growth results. We’re projecting over 20% growth for the Russell 2000 and the S&P 600 (^SP600), compared to around 10% for the S&P 500 (^GSPC),” Reynolds shared with Seana Smith and Madison Mills. “This comes on the heels of a couple of years where small caps have consistently underperformed compared to their larger peers. We believe we are beginning to see the initial signs of a catch-up.” Additionally, Reynolds emphasizes that small caps are more significantly influenced by the Federal Reserve’s monetary policy and the prevailing interest rate landscape. “We anticipate that the Fed will adopt a less aggressive approach to rate cuts than we might have predicted just a month or two ago. Nevertheless, we maintain that the current Fed funds rates are still considerably tight in real terms,” Reynolds explained to Yahoo Finance. “Will we reach neutral rates in the coming months? Likely not. However, we believe the Fed is moving in that direction. Investors who have the patience to approach this from a long-term perspective are likely to reap significant rewards.”
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