The U.S. Federal Reserve (Fed) pivoted this week and confirmed a more accommodative monetary trajectory for the last quarter of 2025. The federal funds rate is expected to be cut two more times, for a total of three cuts across the September, October, and December meetings.
Small businesses are highly sensitive to financing conditions, and lower funding costs are a driver of investment and growth for this category of companies. Under these conditions, can the Russell 2000 — the U.S. small-cap equity index — reach a new all-time high by the end of 2025?
1. The Russell 2000 represents the dynamics of small business activity in the U.S. stock market
The Russell 2000 holds a special place in the American equity universe as it brings together around 2,000 small-cap companies. Unlike the S&P 500, which includes the 500 largest publicly traded U.S. firms, the Russell 2000 reflects more the dynamics of domestic companies, less exposed internationally and often more sensitive to domestic economic conditions, particularly interest rates and U.S. consumption. Given their smaller size, these firms generally have fewer financial resources, making them more vulnerable to economic cycles, but also more agile and able to post rapid growth when the environment is favorable, especially in periods of falling interest rates.
2. There will be a total of three federal funds rate cuts by the end of 2025
Jerome Powell’s Fed has thus confirmed a true monetary pivot to take into account the slowdown in the labor market, while remaining cautious about the upcoming normalization of inflation. The more accommodative monetary trajectory announced should be supportive for risk assets in the stock market, but upcoming U.S. employment and inflation updates will still have a strong impact.
Federal funds rate cycle through the end of 2025: there should therefore be a total of 3 rate cuts by year-end according to the CME Fed Watch Tool shown below.
3. From a technical analysis perspective, the Russell 2000 is testing its all-time high set in November 2021
The upward trend in the Russell 2000 over the past several months signals that investors are anticipating better conditions for U.S. small businesses, directly linked to the decline in the federal funds rate. In the short term, the Russell 2000 may pause as it tests its all-time high, but this resistance could be broken this fall thanks to the Fed’s monetary easing.
The chart below shows weekly candlesticks of the Russell 2000 equity index:
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
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All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
Small businesses are highly sensitive to financing conditions, and lower funding costs are a driver of investment and growth for this category of companies. Under these conditions, can the Russell 2000 — the U.S. small-cap equity index — reach a new all-time high by the end of 2025?
1. The Russell 2000 represents the dynamics of small business activity in the U.S. stock market
The Russell 2000 holds a special place in the American equity universe as it brings together around 2,000 small-cap companies. Unlike the S&P 500, which includes the 500 largest publicly traded U.S. firms, the Russell 2000 reflects more the dynamics of domestic companies, less exposed internationally and often more sensitive to domestic economic conditions, particularly interest rates and U.S. consumption. Given their smaller size, these firms generally have fewer financial resources, making them more vulnerable to economic cycles, but also more agile and able to post rapid growth when the environment is favorable, especially in periods of falling interest rates.
2. There will be a total of three federal funds rate cuts by the end of 2025
Jerome Powell’s Fed has thus confirmed a true monetary pivot to take into account the slowdown in the labor market, while remaining cautious about the upcoming normalization of inflation. The more accommodative monetary trajectory announced should be supportive for risk assets in the stock market, but upcoming U.S. employment and inflation updates will still have a strong impact.
Federal funds rate cycle through the end of 2025: there should therefore be a total of 3 rate cuts by year-end according to the CME Fed Watch Tool shown below.
3. From a technical analysis perspective, the Russell 2000 is testing its all-time high set in November 2021
The upward trend in the Russell 2000 over the past several months signals that investors are anticipating better conditions for U.S. small businesses, directly linked to the decline in the federal funds rate. In the short term, the Russell 2000 may pause as it tests its all-time high, but this resistance could be broken this fall thanks to the Fed’s monetary easing.
The chart below shows weekly candlesticks of the Russell 2000 equity index:
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.