How to analyze the price of the Russell 2000 index?

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You've probably already heard of the Russell 2000 Index. Less well known than the usual benchmark stock market indices such as the S&P500 or the Dow Jones, this index can however also be traded online and has certain advantages. In this article, we will give you more information about the Russell 2000 Index with its precise definition, its advantages and how to analyze and interpret it.  

Elements that can influence the price of this asset:

Analysis N°1

For example, economic data will be followed with some figures and publications that will be important to know here, such as the inflation rate, employment figures, orders for durable goods, business and consumer sentiment, and figures from industry.

Analysis N°2

The international economic policy conducted by the United States will also have direct and indirect impacts on the Russell 2000 companies and therefore on its stock market price. In particular, it will be necessary to take into account all the changes decided upon with regard to trade between American companies and the rest of the world.

Analysis N°3

The foreign exchange market is also one of the markets to be monitored as part of the fundamental analysis of the Russell 2000. Indeed, we know that the dollar and its value against other currencies can have a direct influence on this index.

Analysis N°4

Similarly, certain commodities and their movements can also influence the price of this stock market index. These include the price of gold, but also the price of other metals such as platinum, copper and iron ore.

Analysis N°5

Of course, global geo-political conflicts also have an influence on economic health and growth, so it is important to keep abreast of the impact of these events around the world. This was the case recently with the trade war between the United States and China.

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Definition of the Russell 2000 Index :

The Russell 2000 is a so-called small-cap index that includes the shares of 2,000 companies that are part of the Russell 3000 Index. It is an index created in 1984 by the Frank Russell Company. It is currently maintained by the FTSE Russell which is a subsidiary of the LSE or London Stock Exchange Group.

It should also be noted that the Russell Index is currently considered to be the common benchmark for mutual funds or mutual funds that identify themselves as small caps. Conversely, the S&P 500 Index is used primarily for large-cap stocks. This index concretely measures the performance of the shares of companies with a small or medium capitalization.  We also know that this index represents approximately 10% of the total market capitalization of the Russell 3000 Index.

With regard to the latest figures for this index, it should be noted that as of December 31, 2019, the weighted average market capitalization of a company in the index was $2.48 billion with a median market capitalization of $821 million. The largest company in the index had a market capitalization of $8.27 billion.

There are, of course, other indices that are almost similar to the Russell 2000 and that relate to small-cap companies, such as Standard & Poor's S&P 600, which is used less frequently, or other indices of financial information providers.


Advantages of the Russell 2000 Index :

The Russell 2000 Index has many advantages, including a sector composition that is primarily focused on financials, technology and cyclical stocks, which are over-represented in the Index and thus weigh 26, 14.3 and 11.3%. Less cyclical stocks represent less than 3% of this composition, which leads to high volatility in the Russell 2000 Index price. As a stock market asset, this index is therefore perfectly suited to traders who are looking for such volatility.

We also note that the Russell 2000 outperformed the S&P500 index in its expansion phase, partly because of its high volatility but also because of low liquidity, which is conducive to large movements. However, we should remain cautious as small caps are often more sensitive to panic movements in phases of index stress.

The Russell 2000 will therefore be favoured for trading in bull markets rather than in phases of stock market stress, which generally lead to a massive withdrawal of investors from small caps in favour of companies that are financially stronger and more suited to defensive management.

Lee trading on the Russell 2000 thus offers many advantages and opportunities but remains reserved for the most seasoned traders who will be able to understand and anticipate market reactions.


Can we predict the future evolution of the Russell 2000 index?

It is of course possible to predict the future development of the Russell 2000 Index in a more or less relevant way. To do so, it is of course necessary to be able to take into account the various elements of fundamental analysis likely to have an influence on the companies that make up the index and on the US economy in general. These may be economic factors or political factors.

This fundamental analysis should be carried out taking into account also the period over which you wish to invest. Thus, indicators will be chosen more or less punctual or regular depending on the strategy you wish to implement. It should be borne in mind here that the Russell 2000 index is a very important index with numerous quotations and that it is therefore almost impossible to study each stock individually.

In order to forecast the future evolution of this index, we will not forget the technical analysis which can be interesting in addition to the fundamental analysis. This will be used in particular to assess the volatility and liquidity of this market and to validate or invalidate the signals obtained through fundamental analysis of this stock as a stock.


How to analyse the Russell 2000 Index price?

In order to successfully implement an effective trading strategy on the Russell 2000 Index price, it is important to be familiar with the factors and elements that will have the greatest influence on this asset.

Because the Russell 2000 is an index with a particularly balanced sectoral distribution, it is influenced by macroeconomic variables such as interest rates, inflation rates, general employment, non-farm employment, manufacturing sentiment and other factors. These indicators have a direct influence on the price of stocks included but also affect other parts of the US financial market.

Of course, there are other factors that will influence the price of this index and its evolution, as well as the weight of the stocks that make it up and the individual sectors represented in it. We know, for example, that the value of the US dollar will have a direct impact on the index, as will the price of raw materials such as gold, platinum, copper or iron ore.

Other elements that will influence the price of the Russell 2000 Index include, for example, market sentiment, which is changing, the behaviour of speculators and geopolitical tensions in countries such as North Korea, the Middle East and China.

Let's recall here that the Russell 2000 is an index that is increasingly followed by traders and reflects the health of small and medium sized American companies. It is therefore fairly easy to find reliable and economic information about these factors.

Of course, you should also perform a technical analysis of this index before taking any positions, as the graphical indicators can confirm or refute the signals you've obtained through fundamental analysis.

Frequently Asked Questions

What are the Russell 2000 Index quotation schedules?

Trading hours for the Russell 2000 Stock Index are the trading hours of the CME Global market on which the Russell 2000 Stock Index is listed. Therefore, you can trade this security live from Sunday to Friday from 6:00 pm to 5:00 pm with a trading halt between 4:15 pm and 4:30 pm. Of course, if you take positions on this stock with CFDs, you will have access to this market 7 days a week and 24 hours a day and will be able to schedule your positions in advance.

When is the Russell 2000 index reconstituted?

The Russell 2000 Index is reconstituted, i.e. revised once a year. Typically, this replenishment is done in June of each year with a publication at the same time to allow investors to follow the new indices prior to the effective date of the replenishment. This allows investors to choose the date on which they execute their index trades.

Can we trade on the decline of the Russell 2000 Index?

As we explained in this article, CFDs or difference contrastsdo allow the Russell 2000 Index to trade up and down. This gives you the opportunity to set up a short sale strategy on the stock if you anticipate a decline in its price.

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The content in question is provided for information purposes only and should not be considered as investment advice. Past performance is no guarantee of future results. The trading history is less than 5 years old and may not be sufficient to serve as a basis for an investment decision.

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