NEW YORK, Oct. 8, 2025 – This year marked the sixth anniversary of the milestone in which the market-weighted Russell 2000 went up by 25.5 per cent.
The year 2019 was momentous, as it saw the Russell increase by 23.5 per cent on an equal-weighted basis. During the same year, the Morningstar Small Blend category tied with the equal-weighted Russell 2000, returning 23.5 per cent.
While the US stock market at present is trading near all-time highs, the small-cap-tracking Russell 2000 is witnessing an eventful month.
It is currently trading at 2,487.58, about 0.1 per cent higher on the day. As the index did not end higher on Tuesday, Russell missed out on seeing its eighth consecutive gain.
Since the market bottomed back on April 7, the Russell 2000 has rallied 42 per cent, beating the 36 per cent gain of the S&P 500 by six percentage points.
Why the Russell 2000 is Doing So Well
Rate Cut Expectations: One of the reasons that has helped the Russell 2000 Small-Cap Index perform well is investors’ anticipation of the Federal Reserve cutting rates. That expectation was confirmed when the Fed cut rates by 25bps on September 17.
There is a possibility of a shift in economic parameters, and more rate cuts could be in the offing in the coming months.
The market is currently assessing a 92 per cent probability that the Fed will cut by another 25bps on October 29, and an 80 per cent probability of an additional 25bps cut on December 10.
Small-caps Favored: The Fed-related developments are deemed to be favourable for small-cap stocks since rate cuts tend to have an outsized benefit for smaller companies, which carry a higher amount of variable-rate debt. The rate on this debt drops immediately when the Fed cuts rates, thereby reducing interest expense and boosting EPS.
Besides, higher-risk assets are being embraced by investors as the market rally continues. This has fueled some of the interest in smaller companies that make up the Russell 2000.
Russell 2000 vs S&P 600 Small-Cap Index: In terms of the two pitched against each other, the S&P 600 Small-Cap Index has historically outperformed the Russell 2000 Small-Cap Index.
Data from Index Fund Advisors shows that the S&P 600 outperformed the Russell 2000 by 1.8 per cent annually for 20 years from 1994 to 2013. The S&P 600’s average annual gain was 11.1 per cent, versus 9.3 per cent for the Russell 2000.
The S&P 600 has also outperformed over the last decade, at +172 per cent versus 162 per cent for the Russell 2000, and over the last five years, at +76 per cent versus +67 per cent for the Russell 2000. The reason the S&P 600 outperforms over the long haul is that it is a “higher quality” index.
Profitable Companies in S&P 600: The key difference between the Russell 2000 and the S&P is the presence of a profitability screen. In their earnings, companies should have reported four consecutive quarters of profits and generated earnings in the most recent quarter to be included.
In comparison, the Russell 2000 lacks a fundamental screen. It is simply a collection of 2,000 of the smallest stocks among the Russell 3000 Index, which covers 98 per cent of the U.S. equity market.
Besides, the Russell 2000 is rebalanced just once every year, in June. There is a lot of guesswork and trading based on the names expected to be added and deleted at this event.
FTSE Russell Upgrades Vietnam to Secondary Emerging Market Status
Vietnam received a boost on Wednesday after FTSE Russell made an official announcement that Vietnam will be reclassified from frontier to secondary emerging market status, establishing a key milestone for the country’s capital market after more than a decade of reforms.
The announcement was made early on October 8, Hà Nội time, following the close of US markets on October 7, as part of the index provider’s September 2025 Country Classification Review.
The upgrade is expected to come into effect on September 21, 2026, subject to an interim assessment in March 2026 to confirm Vietnam’s progress in improving market access through global brokers.
FTSE Russell has credited Vietnam for addressing major technical barriers that previously proved to be a roadblock for the upgrade, including settlement cycles and the handling of failed trades. In late 2024, Vietnam introduced a non-pre-funding trading model, allowing foreign institutional investors to purchase shares without fully pre-depositing funds.
Despite not being a formal requirement for reclassification, FTSE Russell has informed that enhanced access is crucial for foreign investors to replicate indices effectively.
The Fed-related developments are deemed to be favourable for small-cap stocks since rate cuts tend to have an outsized benefit for smaller companies, which carry a higher amount of variable-rate debt.
