Russell 2000 Outperformance Sparks Bullish Sentiment Amid Fed Rate Cut Bets

Wall Street strategists are turning bullish on small-cap stocks, forecasting a 20% surge for the Russell 2000 over the next year—nearly double the expected gain for the S&P 500. This Optimism stems from anticipated Federal Reserve rate cuts, which could ease financing pressures and boost margins for smaller firms. The Russell’s recent 1.2% jump outpaced the S&P 500’s 0.7% rise after cooling labor market data reinforced rate-cut expectations.

Michael Casper of Bloomberg Intelligence notes small caps are uniquely sensitive to U.S. economic shifts, with Fed policy poised to rewrite their underperformance narrative since 2020. Morgan Stanley’s Michael Wilson adds that impending cuts may ignite a new phase of the bull market, with earnings surprises and economic resilience as potential catalysts.