Russel 2000 doesn't support S&P500 optimism

29 October, 2019

S&P500 closed Monday at historical highs, adding 0.55% on the day close. Both expected new Fed interest rates cut and possible US-China trade deal served as key drivers of recent market growth impulse. President Trump, in his Twitter, did not manage to avoid this event, attributing these merits to himself.

Resolution of trade disputes and easing of monetary policy should help equally all stocks as the tide lifts all boats. The S&P500 is often regarded as a broad market index, as it includes shares of the 500 largest US companies. However, a more detailed analysis shows that only five heavyweights (Apple, Microsoft, Visa, MasterCard and Oracle) are mainly responsible for this 30% rally from the last Christmas lows.

The Russell 2000 Index, which includes small-cap companies stocks, is 10% below September 2018 peaks reached, when market participants gave up hope of soon reaching Sino-US trade agreement. This index runs close to local highs, but since May this year marks a series of lower highs and lower lows.

Such market dynamic points that medium business is stagnating in the current economic conditions, while only the most significant IT corporations can use the present, almost monopolistic positions in their market niches, for revenue and profit growth.

However, the excess weight of heavyweights in the S&P500 indexes, Dow Jones makes these indices vulnerable to a correction, if the news becomes less optimistic. Still, stock markets are mostly dependent on macroeconomic indicators, a large number of which will be published this week.

Thus, today, the agenda includes data on housing market prices and consumer sentiment in the US. In both cases, indices are expected to increase after the decline in previous months.

The recovery of these indices should confirm that the Fed’s policy is bearing fruit. However, it is not necessary to run ahead of the locomotive, gained speed. On Wednesday, a few hours before the Fed’s decision on the rate, the first estimate of GDP for the third quarter and labour market forecasts from ADP will be released. Friday’s NFPs are expected to show modest growth by 90k, which is merely a half of the average monthly increase over the last economic expansion. In all three cases, economists are getting ready to see the deterioration to the previous values, despite the optimistic mood of the markets.

The markets in the form of S&P500 and Dow Jones indices may falter in the next few days, if reliable macroeconomic data do not confirm the very bold expectations of traders.


Source  
Losing momentum of world markets and economic recovery14 Aug, 2020  

The markets returned to caution Friday, which can be explained by the frustration with new Chinese data, but also by the caution of investors after unsuccessful...

Cold shower for overheated gold and IT stocks12 Aug, 2020  

The world markets are under pressure on Wednesday morning. Negotiations on stimulus packages in the US remain at a standstill, and hopes for a coronavirus vaccine...

Fall of the Euro amid a positive market mood11 Aug, 2020  

Cautious optimism prevails in the markets at the beginning of the week, if we exclude a couple of worrying signs for investors. A wave of purchases continues...


The reasons behind oil growth11 Aug, 2020  

Crude oil gained more ground on Tuesday, with prices underpinned by expectations of U.S. stimulus and a rebound in Asian demand as economies reopen...

Dollar rises on renewed U.S.-Sino tensions7 Aug, 2020  

The U.S. dollar rebounded whilst other major currencies weakened on Friday after President Donald Trump took steps to ban transactions with the Chinese...

Bank of England holds rates steady, but what about economic recovery?6 Aug, 2020  

The Bank of England on Thursday held interest rates steady and maintained its existing level of asset purchases, but warned it is anticipating a slower...


Dollar stumbles as investors await U.S. stimulus breakthrough4 Aug, 2020  

A rebound in the dollar faltered on Tuesday as political wrangling over a U.S. relief plan and the gloomy economic outlook kept investors shy of the currency...

Oil can't find the source of demand3 Aug, 2020  

OPEC and its allies need to find a balance between supporting oil prices and keeping U.S. crude production at bay, a strategist told CNBC this week as the...

Dollar caught a little support from Fed30 Jul, 2020  

The dollar index bounced about 0.4% from a two-year low and the Australian dollar retreated about 0.7% from a 15-month top touched on Wednesday...