Russell vs SPX
January 18, 2021
–As noted previously, NFIB small business optimism seems to be correlated with Russell 2000 small cap index. When Trump was elected, the combination of less regulation and lower taxes sparked a surge in NFIB, and Russell soon followed. The two are diverging currently, with small business optimism plunging in the last report to 95.9, a level which is below the average of the index dating back to 1973, and Russell soaring to new highs, having more than doubled off the March low.
From the report:
“This month’s drop in small business optimism is historically very large and most of the decline was due to the outlook of sales and business conditions in 2021. …Small businesses are concerned about potential new economic policy in the new administration and the increased spread of Covid-19 that is causing renewed government mandated business closures across the nation.”
https://www.nfib.com/surveys/small-business-economic-trends/
–While it’s tough to short any index future in the face of massive monetary and fiscal stimulus, the attached chart of the ratio of RTY to SPX indicates that upside resistance is getting closer (shaded area). As of Friday the value of one March Mini-Russell was $106,040 and of one ESH was $188,112.
