Week Ahead: Can RUS2000 reach highest since 2021?

By ForexTime 

• RUS2000: FXTM’s best-performing US stock index so far this week/month
• RUS2000 forecasted to have the most potential upside over the next 12 months
• Fed speakers, US data next week could help RUS2000 move closer to 2021 all-time high
• Markets predict 89% chance Fed will cut rates by further 75-basis points by end-2024
• Return of US recession fears could send RUS2000 plummeting

The RUS2000 index has been outshining its US peers of late.

This US stock index tracks the smallest 2000 publicly listed companies operating in the world’s largest economy i.e. companies that are more reflective of true US economic conditions.

Of late, the RUS2000 has been rejoicing the most, relative to FXTM’s other US stock indexes, over the Fed’s jumbo-sized 50 basis point rate cut!

That rate cut on September 18th, 2024 was the first US rate cut in 4 years.

With the Fed coming to the US economy’s aid with its rate cuts, the RUS2000 has outperformed other US stock indexes, both on a week-to-date (wtd) and month-to-date (mtd) basis:

• RUS2000: up 3.2% wtd / 1.6% mtd
• US400: up 3% wtd / 1.1% mtd
• NAS100: up 1.7% wtd / 1.35% mtd
• US500: up 1.56% wtd / 1.16% mtd
• US30: up 1.53% wtd / 1.1% mtd

But RUS2000 still missing out on record-high club, for now

To be clear, the RUS200 has yet to join the record-high party which already features the likes of US500, US30, US400, and even gold of late.

At the time of writing, the RUS2000 remains about 8.5% below its all-time high, using intraday prices, of 2458.85 registered on November 8th, 2021.

Wall Street experts predict it will eventually set a new record high, but perhaps only by this time next year.

Wall Street most bullish on RUS2000 12-month outlook

Here are the forecasted potential gains for these US stock indexes over the next 12 months:

• RUS2000: 19.4%
• NAS100: 11.7%
• US400: 9.9%
• US500: 9.1%
• US30: 5.4%

However, such gains are predicated on the notion that the Fed can indeed fend off a US recession.

And much of that will depend on the incoming US economic data, and whether the Fed can overcome their differing views and lower interest rates fast enough to avoid such a scenario.

Otherwise, a US recession is bound to send the RUS2000 plummeting, given the economically-sensitive nature of the stocks within this index.

What to look out for in the coming week?

The incoming scheduled speeches by Fed officials, fresh out of their September FOMC meeting, could provide further cause for RUS2000 bulls (those hoping prices will go higher) to rejoice even more:

Monday, September 23

• NZD: New Zealand August trade balance
• SG20 index: Singapore August CPI
• TWN index: Taiwan August unemployment
• EU50 index: Eurozone September PMIs
• GBP: UK September PMIs
• USD index: US September PMIs
• RUS2000 index: Speeches by Chicago Fed President Austan Goolsbee, Atlanta Fed President Raphael Bostic, Minneapolis Fed President Neel Kashkari

Tuesday, September 24

• JP225 index: Japan September PMIs
• AUD: RBA rate decision
• TWN index: Taiwan August export orders
• GER40 index: Germany September business climate
• Brent/Crude: OPEC releases annual World Oil Outlook
• US400 index: US September consumer confidence

Wednesday, September 25

• CNH: China medium-term lending facility rate
• AU200 index: Australia August CPI
• SEK: Riksbank policy rate decision
• TWN index: Taiwan August industrial production

Thursday, September 26

• JPY: BoJ meeting minutes
• SG20 index: Singapore August industrial production
• CHF: SNB policy rate decision
• US500 index: US weekly initial jobless claims; US 2Q GDP (final)
• USD index: Speeches by Fed Chair Jerome Powell (pre-recorded), New York Fed President John Williams, Treasury Secretary Janet Yellen

Friday, September 27

• JPY: Tokyo September CPI; LDP internal elections
• CN50 index: China August industrial profits
• EUR: Eurozone September economic confidence; Germany September unemployment
• US400 index: US August PCE, personal income and spending
• RUS2000 index: Speeches by Boston Fed President Susan Collins, Fed Governor Adriana Kugler

Sure, the coming week also features key US economic data such as the US purchasing managers index (PMIs), consumer confidence, weekly jobless claims, final estimate of 2Q GDP, personal income and spending, as well as the Fed’s preferred inflation gauge – the personal consumption expenditures (PCE).

All of these quantitative data certainly hold the potential to move US stock markets, including the RUS2000 index.

However, markets may instead be more attentive to the forward-looking statements out of Fed officials in the days ahead.

Why are the Fed speakers so important?

These scheduled speeches come just days after the Fed’s jumbo rate cut on September 18th.

Note that this latest US rates decision also featured its first dissenting vote from any FOMC member since 2022.

Fed Governor Michelle Bowman voted in favour of a run-of-the-mill 25 basis point cut at the just-concluded September meeting.

A closer look at the FOMC’s famous “dot plot” also suggests that policymakers at the world’s most powerful central bank are at odds regarding the size and timing of future rate cuts:

• 10 of 19 officials prefer another 50-bps in rate cuts by end-2024
• 7 of the 19 voted for only one sole 25-bps rate cut by year-end
• 2 of the remaining officials voted for no more rate cuts this year.

FOMC “dot plot” at odds with market forecasts

Not only are there differing views amongst FOMC members themselves, those views are also at odds with the market’s current forecasts.

At the time of writing, markets are forecasting a 89% chance that the Fed will lower its benchmark rates by another 75-basis points by Christmas.

Hence, the incoming Fed speak** will be stacked up against the latest Fed dot plot, and also current market forecasts.

**in bold in our coming week’s list of highlighted events (see above).

Notable shifts to existing market forecasts over incoming Fed rate cuts, either by way of signals from the Fed speak or US economic data, are bound to move prices across various asset classes in the week ahead.

In short, if you think the Fed watch is over, think again.

POTENTIAL SCENARIOS:

• If the incoming Fed speak and US economic data assures markets that the Fed can proceed with the forecasted 75 basis points in rate cuts by end-2024, that could help RUS2000 punch its way past 2300 and closer to its November 2021 record high.
• If the incoming Fed speak and US economic data pushes back on market forecasts for 75 basis points in Fed rate cuts by end-2024, that could drag the RUS2000 stock index back to its 21-day and 50-day simple moving averages (SMA) around 2170 for support.

Article by ForexTime

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