In a banner month for global equity markets, the Russell 2000 clinched a historic milestone of its own. The US small-cap index climbed more than 18% in November, the best monthly gain since its inception in 1984.
When we first developed the Russell Style Indexes, their primary objective was to provide appropriate benchmarks for active asset managers. But investors soon discovered growth and value indexes could be useful for other purposes—such as the basis for passive investments or as tools for implementing tactical style tilts.
Post-pandemic prospects for higher inflation (and interest rates) suggest the dramatic expansion in P/E multiples of the past few years may have run its course. While valuation levels are unreliable market-timing tools, the key question facing investors is whether a P/E mean reversion would be damaging or benign for stocks.
US small-cap stocks have continued to outpace their large-cap counterparts, with the Russell 2000® Index up nearly 10% in the month of February relative to a 6.5% rise for the US large-cap Russell 1000® Index. This same performance trend holds true for YTD and one-year comparisons between the two indexes.
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