Remember the Trump bump? The post- 2016 election climb in U.S. equity indexes was signaled first in small cap indexes. The Russell 2000 index of small caps climbed 14.3 percent following the election, its highest post-election climb since its inception in 1979.
Small caps represent a snapshot of the U.S. economy since most of the stocks in indexes like the Russell 2000 are domestic. That means they are often the first indexes to respond when major market moving events like a U.S. election occur. “Those small cap U.S. equity stocks have less exposure outside the United States so they’re a good barometer for U.S. economic activity,” Ron Bundy, CEO Benchmarks-North America for FTSE Russell told us in an interview.
The Role of the Exchange
This barometer role is one reason the Russell’s move to CME Group made waves when it transitioned to the exchange in July 2017. Since then, E-mini Russell 2000 futures are trading nearly 120,000 contracts per day.
In addition to measuring the impact of economic events, e-mini Russell futures help investors and hedgers trade round the clock, an attractive trait for both retail and institutional investors. In our interview with Bundy, he talked to us about the important role of exchanges in making indexes accessible and providing transparency for equity prices.
“The exchange is very important because it takes that index and makes it an investible product that everyone can access. The index itself doesn’t go far enough.”
Watch more about how indexes and exchanges work together, and see Bundy’s full remarks in the video above.
Source: CME Open Markets – Why Small Cap Indexes Are An Economic Barometer