美联储主席鲍威尔在发布会上强调，降息并不意味着美联储对经济衰退的预期加剧。他指出：After the Federal Reserve announced a 50 basis point rate cut, the three major U.S. stock indexes all rose sharply. The market continued to digest Powell's speech, and the three major indexes fluctuated up and down like a roller coaster, ultimately ending with a decline.
On the other hand, representing small-cap stocks, $Russell 2000 Index (.RUT.US)$ Slightly outperformed the three major indices. After the Federal Reserve announced a 50 basis point rate cut,E-mini Russell 2000 Index rose sharply and ultimately closed flat. In fact, as of the close on September 18, the Russell 2000 Index has risen for 6 consecutive days.
With the Federal Reserve's announcement of a 50 basis point rate cut, Powell repeatedly emphasized that the "U.S. economy is still strong." In this way, the combination of "significant rate cuts" and "strong/soft landing economy" is believed to benefit small-cap stocks more than large-cap stocks from loose monetary policy.
Powell: U.S. Economy Strong, 50 Basis Point Rate Cut Not a Recession
Federal Reserve Chairman Powell emphasized at the press conference that the rate cut does not mean an increased expectation of an economic recession. He pointed out, "There are currently no signs of rising recession risks. Our policy adjustment is mainly for recalibration to adapt to the current economic conditions."
Powell also pointed out that the main purpose of this rate cut is to stabilize the job market. He emphasized, "We are confident in the current monetary policy adjustment and believe that this appropriate readjustment will help maintain a strong job market, achieve moderate economic growth, and let inflation stabilize back to 2%."
Powell said that the future path of interest rate cuts will depend on changes in the labor market and inflation, but the US economy is still in a strong state.
Employment has once again become a key economic indicator, rather than inflation. This interest rate cut marks a new stage in the Fed's efforts to balance inflation suppression and employment maintenance. With changes in economic data, more policy adjustments will follow.
Small-cap stocks may outperform large-cap stocks in an interest rate cut cycle.
Following the start of an interest rate cut cycle, the performance of small-cap stocks often outperforms that of large-cap stocks in the short to medium term. Especially during non-recessionary interest rate cuts, the pressure on the stock market is relatively reduced. Interest rate cuts generally support the stock market, and small-cap stocks are considered to benefit more from monetary policy easing than large-cap stocks.
The main logic is that small-cap stocks are often very sensitive to the benchmark interest rates set by the Fed and heavily rely on floating rate loans. Therefore, in the background of Fed rate cuts, lower loan rates can help ease the balance sheet pressure for small-cap companies, which is expected to increase profit margins and stock valuations.
For example, in the interest rate cut cycle from 2019 to 2020, the Fed announced on July 31, 2019, a cut from 2.25-2.50% to 2.00-2.25%, marking the start of the interest rate cut cycle.
On March 15, 2020, following a special meeting to address the pandemic, the Fed lowered the federal benchmark interest rate from 1.00-1.25% to 0.00-0.25%, ending the interest rate cut cycle.
In the 1-year period after the end of the interest rate cut, $Russell 2000 Index (.RUT.US)$ Increased by 127.50%, outperforming the rebound. $S&P 500 Index (.SPX.US)$ Of course, with such a large increase, there are stocks in the USA encountering in 2020.Circuit breakerHowever, the Russell 2000 index still rose 18.36% throughout 2020.
Compared to large-cap stocks, the environment of the Federal Reserve's interest rate hikes and high interest rates has widened the valuation gap between large-cap and small-cap stocks. With concerns about the future of artificial intelligence in the market, large companies' stock prices require greater-than-expected growth in order to have further upside potential, although some of these companies are likely to be long-term winners.
How to position small-cap stocks in an interest rate reduction cycle?
In addition to the Russell 2000 Index, there are also the S&P SmallCap Index and the CRSP SmallCap Index for small-cap stock indices, which have corresponding ETFs as well as leveraged or inverse ETFs.
Among them, there are ETFs that track the Russell 2000 Index,
$iShares Russell 2000 ETF (IWM.US)$ ;
Leveraged and inverse ETFs include:
$Short Russell 2000 Proshares (RWM.US)$ ;
$Proshares Trust Pshs Ulshrus2000 (Post Rev Split) (TWM.US)$ ;
ETFs that track the S&P Small Cap Index and CRSP Small Cap Index include:
$iShares Core S&P Small-Cap ETF (IJR.US)$ ;
as well as their leveraged and inverse ETFs:$Direxion Daily Small Cap Bull 3X ETF (TNA.US)$Please use your Futubull account to access the feature.$Direxion Daily Small Cap Bear 3X Shares ETF (TZA.US)$.
Can you easily invest in US stocks without picking stocks? Open Futubull and let index ETFs help you.Market > ETF > Index ETF > Choose your favorite ETF.Invest in US small-cap ETFs on a regular basis and seize the investment opportunities.
Editor/Rocky
