Source: Jin10 Data

Since this month, small cap stocks have continued to rise as investors question the sustainability of this uptrend and the future direction of interest rates after President-elect Donald Trump takes office in January next year.

$Russell 2000 Index (.RUT.US)$ As an indicator of small cap stocks in the USA, it rose 1.5% on Monday.$S&P 500 Index (.SPX.US)$Slightly up by 0.1%, hitting another historical high. On Monday and last week, small-cap stocks easily outperformed the s&p 500 index, a widely watched large-cap stock indicator.

Louis Navellier, Chief Investment Officer of Navellier & Associates, stated in a Monday email commentary: “Market momentum remains strong. While valuations have become challenging compared to historical averages, there has been a rise in the prices of lagging sectors,” which is reflected to a certain extent in the e-mini russell 2000 index being “clearly outperforming” the s&p 500.

Navellier pointed out that investors' “fear” of missing out on stock market gains is driving the continuous rise in the stock market.

Analysts at jefferies financial stated in a report on Saturday that the “most interesting issue” they are addressing is whether small cap stocks can “continue to strengthen” after the rebound driven by the election results.

"Clearly, the path of lower interest rates will have an impact, but investors seem to have taken action on Wednesday," analysts said.

Last week, as long-term U.S. Treasury yields fell, small-cap stocks surged.

After Trump won the presidential election and it was expected that Washington would be controlled by Republicans, the 10-year U.S. Treasury yield soared. Investors seemed to have priced in concerns about inflation that his tariff policy could trigger, as well as potential larger fiscal deficits.

But following investors evaluating Federal Reserve Chairman Powell's remarks after the November 7 Federal Reserve rate decision, the 10-year bond yields fell last week.

"Chairman Powell did not explicitly commit to quick rate cuts," jefferies financial analysts said. "Some on Wall Street are starting to lower the expected rate cuts for 2025," they added, "Inflation data in the coming months may become the focus of market attention.

In observance of Veterans Day, the U.S. bond market was closed on Monday.

According to Dow Jones market data, last week the 10-year U.S. Treasury yield dropped by 5.4 basis points to 4.307%, ending a seven-week uptrend. As for short-term rates, last week the 2-year Treasury yield rose by 5.2 basis points to 4.253%.

John Mazzey, Head of U.S. Treasury and TIPS Investments at Vanguard Group, stated that pre-election bond yields rose due to unexpectedly strong economic data and market bets on an increased probability of a Trump victory.

He mentioned on the phone that the 'knee-jerk reaction' on election day led to an increase in yields. Subsequently, the market's pullback was reasonable and in line with expectations.

"We are now in the next phase," Mazyar said. "For yields to rise further from current levels, we must have a clear expectation of Trump's potential policies, including the implementation of more tariffs."

As of Monday, the Russell 2000 Index has risen by nearly 11% this month, outperforming the S&P 500's 5.2% increase in November.

Jefferies analysts mentioned regarding small-cap stocks: "While rate cuts may help drive further gains, we may be in the midst of a mid-term institutional reform."

Their research found that when the Russell 2000 Index 'significantly diverges from the S&P 500,' small-cap stocks tend to 'remain strong.' They noted that the Russell 2000 Index five-day return on November 6 was an event exceeding three times the standard deviation.

Analysts looked at the difference in the five-day returns of the Russell 2000 and the S&P 500 since 1980, finding that small-cap index had an average return of close to 7% in the following six months and a 14% return in twelve months.

USA stock market closed higher on Monday, with the s&p 500 index closing above 6000 points for the first time. $Dow Jones Industrial Average (.DJI.US)$ Increased by 0.7% on Monday,$Nasdaq Composite Index (.IXIC.US)$Slightly increased by 0.1%.

"Due to expectations of the Trump administration's policies to boost economic growth, the stock market rose overall," Brent Shutt, Chief Investment Officer of Northwest Mutual Wealth Management, stated in a report on Monday, highlighting small-cap and middle-cap stocks as "market areas with relatively lower valuations that we have identified."

Editor / jayden