Loss-Making Russell 2000 Stocks Drive Surprise Rally, Says Liz Ann Sonders
Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, noted that unprofitable stocks in the Russell 2000 index have led a recent rally, with loss-making stocks up 53% since April 8, compared to 22% for profitable ones. The Russell 2000 has risen 40.2% since its 52-week low, outperforming the S&P 500's 39.2% increase. The rally followed a Federal Reserve interest rate cut, which eased borrowing costs for small companies. As of Thursday, the Russell 2000 ETF was down 0.64%, while the S&P 500 was down 0.29%.
Liz Ann Sonders, the Chief Investment Strategist at Charles Schwab & Co. (NYSE:SCHW) highlighted certain unusual divergences in the small cap markets.
Unprofitable Small-Caps Lead The Rally
On Thursday, in a post on X, Sonders broke down the composition of the Russell 2000 index and the performance of its constituents, highlighting that “57% of index is currently profitable,” while “41% of index is currently unprofitable,” and “2% of index doesn't currently have earnings data available.”
She noted that the stocks losing money have been leading the charge higher in recent months. Since the Russell 2000's April 8 closing low, the profitable stocks on the index are up 22%, while the loss-making stocks are up 53%.
Russell 2000 Outperforms The S&P 500
As of Thursday’s close, the Russell 2000 index, which primarily tracks small-cap U.S. equities is up 40.2% since its 52-week low on April 8th, following the “Liberation Day” tariffs. The S&P 500, on the other hand, is up 39.2% during the same period.
The small cap index, tracked by the iShares Russell 2000 ETF (NYSEARCA: IWM) touched an all-time high last month, following the 25-basis point interest rate cut by the Federal Reserve. The rate cut offered much-needed relief for smaller companies by lowering borrowing costs amid tough macroeconomic conditions.
The S&P 500, tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) was down 0.29% on Thursday, and is up 0.07% in overnight trade. The iShares Russell 2000 ETF was down 0.64% on Thursday, and is currently up 0.18% overnight.
- Top Performing Small Cap Stocks
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