Will the fate of blue-chip stocks and small to mid-cap growth stocks start to shift gears now?

Recently, the market has been quite interesting. Blue-chip stocks are fluctuating at high levels, while the Russell 2000 Index, this little brother, suddenly becomes active. Is the market about to change?

Blue-chip stocks have been strong for two years. Now, with a rate cut, is it time for small and mid-cap growth stocks to shine?

Looking back at Russell 2000’s investment pace, are there any good entry points?

Considerations for Investing in the Russell 2000 Index

Several potential favorable opportunities and considerations:

Strong economic growth. Small and mid-cap companies are sensitive to economic growth, so when the economy is doing well, they take off!

Decreasing interest rates. Lower interest rates or stable rates mean lower borrowing costs, which is beneficial for small and mid-cap companies.

Investors willing to take risks. When market sentiment is positive, people are more willing to invest in high-risk, high-return stocks, making small and mid-cap stocks more popular.

Positive earnings expectations for companies. If everyone believes that small and mid-cap companies will be profitable, their stock prices may rise accordingly.

Strong technical indicators. Technical analysis sometimes indicates the right time to buy, such as when the Russell 2000 Index breaks through resistance levels or when the 50-day moving average crosses above the 200-day moving average (golden cross).

Market downturn. The valuation of small and mid-cap stocks may become more attractive!

Specific strategies include:

Don’t try to buy at the lowest price in one go; gradually buy in batches to lower the average cost and risk.

During earnings season, pay attention to companies that exceed profit expectations, as their stock prices are likely to rise.

Stay informed about economic policies as these changes can affect your investment strategy, requiring timely adjustments.

Small and mid-cap growth stocks are volatile, so patience is key. Only by not being swayed by short-term fluctuations can you seize long-term growth opportunities!

The performance of the Russell 2000 during historical interest rate cutting cycles.

From 2001 to 2003, following the bursting of the dot-com bubble and the 9/11 attacks, the Federal Reserve significantly lowered interest rates in an effort to boost the economy.

Despite market turbulence, the Russell 2000 Index performed well in 2001, rising by 2.5%.
In 2002, with the economy still struggling, the Russell 2000 fell by 21.6%, showing more resilience compared to large-cap stocks.
In 2003, as the economy began to improve, the Russell 2000 surged by 45.4%, outperforming the S&P 500 Index by a significant margin.

During 2007-2008, the subprime mortgage crisis hit, prompting the Federal Reserve to lower interest rates from 5.25% to 0-0.25%.
The Russell 2000 saw a modest increase of 1.5% in 2007, but in 2008, amidst the financial crisis, it plummeted by 34.8%, similar to the decline in the S&P 500.
By 2009, with the coordinated efforts of the Federal Reserve and the government to stabilize the market, the Russell 2000 rebounded, ending the year with a 27.2% gain.

From 2019 to 2020, global economic growth slowed down, exacerbated by the COVID-19 pandemic, leading the Federal Reserve to lower interest rates from 2.5% to 0-0.25%.
In 2019, following the rate cut, the Russell 2000 surged by 23.7%; however, with the outbreak of the pandemic in early 2020, the market became chaotic, and the Russell 2000 also experienced a significant drop in the first quarter.
But with the subsequent strong policies implemented by the Federal Reserve and the government, the index quickly rebounded, ending the year with an 18.4% gain.

During the early stages of an interest rate cut cycle, it is crucial to seize opportunities, closely monitor policy changes and economic data, adjust investment strategies promptly, and maintain a long-term perspective.

Growth stock ETFs worth paying attention to.

Standard Russell 2000 ETF

iShares Russell 2000 ETF (IWM): IWM is one of the most popular ETFs tracking the Russell 2000 Index, with an expense ratio of 0.19%. It boasts high liquidity, large trading volume, and is suitable for both long-term holding and short-term trading.

Triple-Leveraged ETF for Long Russell 2000

Direxion Daily Small Cap Bull 3X Shares (TNA): TNA is a triple-leveraged ETF for long exposure to the Russell 2000 Index, aiming to achieve three times the daily return of the index. It has an expense ratio of 1.08% and is suitable for short-term trading.

ProShares UltraPro Russell 2000 (URTY): URTY is another triple-leveraged ETF for long exposure to the Russell 2000 Index, with an expense ratio of 0.95%. It offers similar triple leverage to TNA and is suitable for short-term strategies.

Other Related Small and Mid-Cap ETFs

Vanguard Small-Cap ETF (VB): VB tracks the CRSP US Small Cap Index, including some small-cap stocks beyond the Russell 2000 Index, with an expense ratio of 0.05%. It is suitable for long-term investment.

Schwab U.S. Small-Cap ETF (SCHA): SCHA tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, providing broad exposure to U.S. small-cap stocks. It has an expense ratio of 0.04% and is suitable for long-term holding.

Depending on your investment goals and risk tolerance, you can choose the appropriate ETF. IWM is the standard choice for tracking the Russell 2000 Index, while TNA and URTY are triple-leveraged ETFs for short-term traders. For long-term investors, VB and SCHA are low-cost quality options.

Disclaimer: The content of this article is for reference only and does not constitute investment advice. Investing involves risks, so caution is advised when entering the market.

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