Russell can’t catch a break

Chart of the Day

Despite the continued rebound in the S&P 500 and Nasdaq yesterday, the small-cap Russell index fell by 1.0%. While both the Russell and Nasdaq have been underperforming the S&P 500 since late last year, when the Fed started to turn more hawkish, the Russell has been struggling the most recently. The problem for investors in the Russell is that many of its “meme stock” constituents were bid up massively in price, as free money flooded the markets in the form of stimulus checks and central bank liquidity. With that liquidity now set to be withdrawn, those same companies are suffering more than their large-cap peers on the Nasdaq, which can at least point to strong earnings growth to justify relatively high valuations.


Ahead of the US non-farm payrolls report on Friday, the ADP employment report showed a decrease of -301,000, much weaker than the gain of closer to 100,000 that economists expected – reduces the chance of a really hawkish move from the Fed next month.

Mortgage applications are jumping, even as mortgage rates rise (inverted scale for the white line).

Eurozone inflation rose to a record high (i.e. since the late 1990s) of 5.1% in January, but the ECB will take some encouragement from the fall in core inflation to 2.3%.

Consumers’ inflation expectations have stabilized at a level that isn’t really too concerning for the ECB either.


Brazil has hiked its policy rate back above 10%.

That has helped to support an appreciation of the currency, which will help to reduce some imported inflationary pressures in the country.

The backdrop has been favorable for EM currencies more generally in recent days, with the euro and USD also rising against the USD lately.

Bitcoin’s rebound was shortlived, a worrying sign given how previous rebounds in 2021 were very rapid – less belief this time round?

With the Russell underperforming, the Nasdaq to Russell ratio is close to its highest since late 2020.

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