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.

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