Russell 2000 All Time High


Recently, the Russell 2000 (RUT) index reached an all-time high. The Russell 2000 is comprised of small U.S companies. Although this small cap sector lagged large multinational companies last year, it is now breaking out into uncharted territory. So what is causing this?

Last year, investors believed multinational companies would benefit more from the pickup in the global economy. Now, those same companies are at risk because of the potential of trade disputes, mostly with China. Although, we do not think a full-blown trade war will occur, negotiations are currently taking place. Therefore, investors may have concerns and are looking for other areas to invest.

Investors may be moving money into small cap companies because their business has less global risk.  According to a recent research note from Bank of America Merrill Lynch, the S&P 500 gets 30% of its revenue from business overseas compared to 21% for the Russell 2000. Hypothetically, earnings for small cap companies would be affected far less if the US and China started a trade war.

Lastly, we cannot ignore recent tax reform. In the past, small cap companies paid higher effective tax rates compared to large cap companies. Large caps receive bigger tax deductions, which puts them in lower tax brackets. On the other hand, small caps do not receive those same deductions and fall in higher brackets. As a direct result of corporate tax reform, small cap companies may benefit more from the lower tax rate going forward.

So how has this affected small cap returns so far this year? As you can see from the chart above (as of  5/18/2018), the Russell 2000 (black line) has outperformed the S&P 500 (blue line) by 4.4% year to date.  GFA's guidance has helped investors take advantage of these gains. Utilizing the services of Griffin Financial Advisors, LLC can help you take advantage of these market environments also. We can help you with your asset allocation that responds to ever-changing market events and news.  Please reach out to us with any questions regarding your portfolio.


Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio.  Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Griffin Financial Advisors, LLC. The opinions expressed are those of Griffin Financial Advisors, LLC and are subject to change at any time due to the changes in market or economic conditions.

Comments

Post a Comment

Popular posts from this blog

Mortgage Rates Lowest on Record

Image
Last week, the average rate on the 30-year fixed rate mortgage (FRM) fell to 2.98%. This is the lowest level in almost 50 years of recorded rates. With the cost of borrowing being so cheap, now may be the perfect time to refinance an existing mortgage or consider a new home purchase. Contacting a mortgage lender or originator could be of benefit to improving your financial position. How did we arrive at such low rates? As you know, the coronavirus pandemic rocked the economy. With a dark economic forecast, the Federal Reserve had to aggressively respond. One key action taken by the Federal Reserve was to lower interest rates. Investors also contributed to reducing rates by fleeing risk assets and investing in safe-haven assets, such as Treasuries. Remember, when an investment is in demand, its price moves higher. For bonds, as prices rise, yields or rates move lower. This is further illustrated by looking at the most popular debt instrument, the 10-year Treasury. The 10-...
Read more

How to Handle Your 401(k) When You Leave a Job or Retire?

Image
As advisors, we often get asked “what should I do with my 401(k)?” The reason for this question is because most individuals will experience some type of transition throughout their careers. Some individuals leave their current employer and join a new one. Others, unfortunately, may face the hardship of being let go. Others, after enjoying a rewarding career, just retire. Regardless of the transition you face, you have four options for your 401(k): Keep it where it is in your existing plan. Roll it into the 401(k) at your new employer (if allowed). Roll it into an Individual Retirement Account (IRA). Cash it out, withdraw the funds. Let’s explore each option and what implications they have on the choice. Keep it Where it is To start, keeping your 401(k) where it is is pretty self-explanatory. It is the most common choice according to a recent study conducted by the Vanguard Group. The study found that investors who separated from their employers in 2018 were more like...
Read more

Back to School- 529 Savings Plans

Image
529 Savings Plans were created back in 1996 to allow individuals a tax-advantaged way to save and pay for education expenses. These plans have been very successful. In fact, The Center for Social Development found that children who have a 529 plan are approximately three times more likely to attend college. We will discuss the plans available and how they work.  Types of 529 Plans in Illinois Currently in Illinois, you can utilize two providers for 529 plans. One of the providers is Bright Star.   Here, participants manage the 529 plan on their own. The second provider is Bright Directions . This provider allows financial advisors to manage the 529 plan for you. Managing the plan involves selecting the custodian and beneficiary, as well as choosing the investments.   The custodian, an adult, is the person who makes the decisions for the plan.   Primarily this includes handling contributions, investments, and distributions.   The beneficiary is the pe...
Read more