Catenaa, Friday, September 12, 2025- The Russell 2000, home to some of the riskiest stocks on the market, has been on a tear, jumping almost 10% since the end of July, doubling the advance of the S&P 500.
Data compiled by Bloomberg, a bottom-up aggregation of price targets, shows analysts expect the run of outperformance to continue over the next year. They see the potential for a 20% advance in the Russell 2000, compared with calls for an 11% jump in the S&P 500.
The call is a bold one, going by recent history. Small caps have lagged behind bigger companies every year since 2020, and even after the latest surge, still trail the S&P 500 in 2025.
The logic behind the prediction is that expected Federal Reserve rate cuts will lower borrowing costs for companies in the Russell 2000 enough to meaningfully boost margins.
The analysts expect the bull market in US stocks, powered so far mostly by large caps, to broaden to smaller companies as Fed easing supports a still-strong economy.
“These are the most sensitive companies to the US economy,” said Michael Casper, Senior US Equity Strategist at Bloomberg Intelligence, noting that interest rate cuts may be the catalyst that wins the sector more support from Wall Street.
Thursday’s market reaction to inflation and jobs data underscored the optimism. A largely in-line reading on prices and further signs that the labor market is weakening bolstered bets that the Fed will cut rates next week and again later this year. The Russell 2000 jumped 1.2% while the S&P 500 added 0.7%.
So far this reporting season, things have gone in the right direction. Second-quarter earnings came in above estimates for more than 60% of stocks in the Russell 2000, and the results beat top-line estimates by 130 basis points on average, data compiled by Bloomberg Intelligence showed.
