Russell 2000 Rally Continues: How Treasury Pick is Fueling Optimism in Small Cap

• The Russell 2000 surged 4.5% last week.
• The small cap index is up 10% in November.
• Markets cheered Trump’s pick for Treasury, Scott Bessent.

Markets were up Monday on the choice of Scott Bessent as Treasury Secretary.

The stock market rallied last week, led by the , which rose 4.5%. Since the start of November, the has outperformed its large cap counterparts, rising about 10% to 2,407 as of last Friday, November 22.

All of the major indexes were up last week, bouncing back from a negative run the previous week.

The rose 1.7% last week to 5,969, as it is once again knocking on the door of the 6,000-point barrier, which it reached briefly on November 12 and 13 before falling back.

The also climbed 1.7% last week and breached 19,000 points, ending the week at 19,004. It is also nearing its all-time closing high of 19,298 set on November 11.

The also had a good week, up 2% and closing at an all-time high of 44,296 as of November 22.

With the Thanksgiving holiday coming up on Thursday and Friday, it will be a short week for the markets, but all of them are already off to a strong start.

Small Caps Up 18.7% This Year

Small-cap stocks have been trailing large caps for a few years now, as the Magnificent Seven-fueled rally of the past two years has left smaller stocks in the dust.

But many experts had predicted a small-cap rally in 2024, as the market begins to broaden out beyond overvalued large caps. That took a while to take hold, as big stocks continued to dominate through the first half of the year. However, small caps started surging around mid-year and have continued to run through November.

November, in fact, has been the best month of the year for the Russell 2000 as it has gained 10% and lifted the index’s year-to-date return to 18.7%. That is the same as the Dow, and is at least in the area code of the still hot Nasdaq Composite, up 26.7% YTD, and S&P 500 up 25.5% YTD.

And like the other indexes, the Russell 2000 is nearing its all-time high of 2,458 (intraday) set on November 8, 2021.

A couple of factors have driven the small-cap rally, most notably, the broadening of the market beyond overpriced large caps, many of which are still overpriced. The P/E of the S&P 500 is still at 30, which is historically high, while the is even higher at 33.

But the other big drivers are inflation and interest rates. Inflation is going down, as are interest rates, which are both particularly good for cash-strapped small caps because it makes it cheaper for them to invest and grow.

If inflation doesn’t rear its head again in 2025, and rates continue to move lower, 2025 should be another good year for small caps and the Russell 2000.

Bessent Named Treasury Secretary

The markets opened higher on Monday, led by the Russell 2000, up 1.6% as of mid-morning, on President-Elect Donald Trump’s choice for Treasury Secretary, Scott Bessent.

The pick of the hedge fund manager, who founded Key Square Group, was cheered by investors.

Bessent is a money manager and a Wall Street veteran, so he is seen as a favorable pick on Wall Street. He has also been described as reasonable, pragmatic, and a “safe pair of hands” by analysts and experts.

Bessent worked for billionaire investor George Soros before starting his hedge fund and is seen as more moderate with respect to tariffs, while focusing on reducing regulation and curtailing deficit spending.

He has advocated for his 3-3-3 stance, which calls for generating 3% economic growth, reducing the budget deficit to 3% of GDP, and increasing domestic oil production by 3 million barrels per day.

Also, this week, the consumer confidence report comes out on Tuesday while the Personal Expenditures (PCE) report on inflation is released Wednesday.

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