After correcting more than 10% on inflation concerns, the Russell 2000 (small cap) index has stabilised and was the best performing of the US major indices on Tuesday night. Markets look at least 6 months ahead, and this is a classic example; with further US rate cuts now looking like a 2026 story, the less dovish backdrop has rapidly been built into the rate-sensitive small-cap stocks. Moving forward with the dovish tailwind off the menu in the foreseeable future, small-cap stocks are set to be driven by individual performances, i.e. as we often say, earnings ultimately drive share prices. However, Trump’s agenda to cut taxes and red tape remains a clear driver of US small-caps.
- We can see the Russell 2000 making new highs in the coming months, but we wouldn’t chase the move.
MM is now neutral towards US stock’s short-term
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