The Russell 2000’s session overnight showed a market caught between a solid earnings backdrop, with beats outnumbering misses, and rising macro anxiety around the Iran conflict, higher oil prices, and the possibility that the Fed’s next move could be a hike rather than a cut. Small caps, being more domestically exposed and rate-sensitive than large caps, are particularly vulnerable to a hawkish Fed, and at the moment credit markets are pricing in one, and maybe two hikes before Christmas.
NB Reporting is still in its early stages for small caps; the bulk of Russell 2000 companies report in the final two weeks of July and through August. But so far, beats are clearly outnumbering misses, with financials and industrials leading the way.
- We can see the Russell 2000 continuing to outperform in 2026, as interest rate fears eventually ease.
MM remains bullish towards the Russell 2000 around the 2950 level
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