Can Russell 2000 break the curse?

category:Finance
 Can Russell 2000 break the curse?


From December 1999 to December 2019, the S & P 500 index rose 225%, with an average annual growth rate of 6.1%, and Russell 2000 rose by 338% with an average annual growth rate of 7.7%. However, if we only look at the performance of the past 10 years, the yield of the Russell 2000 index at 150% is far less than the 203% increase of the S & P 500 index. Jan loeys, a senior strategist at JP Morgan, believes that globalization, loose antitrust environment in the United States and economies of scale brought about by technology giants may explain why the advantages of small stocks have been weakening in recent years.

On September 2 this year, the market ushered in a new milestone. Apples total market value exceeded $2.3 trillion, becoming the first enterprise with a market value exceeding the total market value of Russell 2000 index. Compared with the scenery of science and technology companies in public health events, the living environment of most small enterprises is deteriorating.

According to the National Federation of independent enterprises (NFIB), optimism among small businesses in the United States fell to a seven-year low in April due to the epidemic and its related widespread blockade. NFIB said at that time that covid-19 had a devastating impact on the business environment and domestic orders.

Nearly 50% of Russell 2000s constituent stocks were at a loss in the second quarter, according to Vincent deluard, global macro strategist at stonex, an investment firm. Small enterprises do not have the financial and operating scale of the S & P 500 Index constituent stocks, and can not quickly restructure and adjust their business to cope with the epidemic. And the profit margins of these companies are often low, which makes the impact of the epidemic even worse.

Institutions are optimistic about vaccines as a turning point

Pfizer, Moderna, AstraZeneca and other pharmaceutical companies vaccine clinical trial results let the market see the hope of defeating the virus, which has also become a catalyst for a new round of market conditions. Small cap stocks are often seen as a barometer of investor sentiment and are often the first target to start economic recovery.

The number of job vacancies in small businesses hit a record high in October, according to data released by the National Federation of independent enterprises on the 12th. Business owners are showing increasing confidence in the health of the economy, with nearly a fifth of the companies surveyed planning to create jobs in the next three months. Chris Williamson, chief business economist at ihsmarkit, points out that corporate expectations for the coming year have soared to the most optimistic level in more than six years, reflecting the expectation that vaccines may bring businesses back to normal business in the near future.

Li hengzhao, Guotai Junan international investment strategist, said in an interview with first finance and economics reporter that there is no doubt that vaccine research and development is crucial for economic recovery. The current plate rotation shows that the market funds prefer to small cap stocks and cyclical stocks with low valuation. With the orderly development of vaccines, economic activities of various industries in the United States gradually increase, and there are many opportunities for these sectors.

Michael Wilson, chief U.S. equity strategist at Morgan Stanley, points out that many listed companies were already under negative leverage before the outbreak of the epidemic, which may mean that earnings growth has bottomed out in the second quarter. It can be inferred that the enterprises with the deepest negative operating leverage are most likely to have the largest expected increase in earnings next year. From this perspective, cycle stocks and small cap stocks have the greatest potential.

But given the severity of the epidemic, a new round of fiscal stimulus is more important for the U.S. economy and businesses. This week, Goldman Sachs lowered its forecast for U.S. GDP growth in the fourth quarter to 3.5% from 4.5% before, and to 1% in the first quarter of next year from 3.5% before. The bank believes that the rapid and widespread resurgence of the new crown epidemic is likely to slow down the pace of recovery, leading to serious downside risks.

Li hengzhao told reporters at first finance and economics that there are signs that the recent economic growth may have begun to waver. Real time economic indicators such as retail flow and employee hours have stagnated as States implement new restrictions to try to stop the spread of the coronavirus. The financing channels, financial stability and management depth of small companies are not as good as those of large companies. The new round of epidemic situation is making the situation more complicated. Although U.S. Senate Majority Leader McConnell said last week that he agreed to resume negotiations with the Democratic Party on a potential new round of anti epidemic stimulus bill, the contradiction between the two sides on core issues such as the amount of the stimulus package means that the dialogue process is difficult to go smoothly. Li hengzhao told reporters that as the primary task of the two parties after the election, the possibility of a large-scale stimulus policy is very slim at present. If there is no follow-up relief plan, the U.S. economy will face a slower recovery prospect or even stagnation risk. American enterprises and individuals will not be able to obtain credit. A new wave of bankruptcy may emerge, and a large number of small enterprises will become zombie companies. Given the impact of small businesses on the job market, this will also increase the potential macroeconomic risks. Source of this article: Yang Bin, editor in charge of the first finance and Economics_ NF4368

Li hengzhao told reporters at first finance and economics that there are signs that the recent economic growth may have begun to waver. Real time economic indicators such as retail flow and employee hours have stagnated as States implement new restrictions to try to stop the spread of the coronavirus. The financing channels, financial stability and management depth of small companies are not as good as those of large companies. The new round of epidemic situation is making the situation more complicated.

Although U.S. Senate Majority Leader McConnell said last week that he agreed to resume negotiations with the Democratic Party on a potential new round of anti epidemic stimulus bill, the contradiction between the two sides on core issues such as the amount of the stimulus package means that the dialogue process is difficult to go smoothly. Li hengzhao told reporters that as the primary task of the two parties after the election, the possibility of a large-scale stimulus policy is very slim at present. If there is no follow-up relief plan, the U.S. economy will face a slower recovery prospect or even stagnation risk. American enterprises and individuals will not be able to obtain credit. A new wave of bankruptcy may emerge, and a large number of small enterprises will become zombie companies. Given the impact of small businesses on the job market, this will also increase the potential macroeconomic risks.