Small Companies Index Under Pressure as Real Rate Appreciates

  • US2000

Chart 1

Since the end of July, the US 10-year real yield has been moving upwards. US data has been strong, and inflation is proving to be sticky. The thinking has shifted that rates may be higher-for-longer.

In response, the US2000, FXCM's small companies CFD, has turned down and is starting to show signs of weakness. Its green 5-week EMA has crossed below its orange 10-week EMA (black circle), which is a bearish formation. Moreover, the US2000's RSI is slipping below 50 (green rectangle), which is the bearish side of the indicator. The longer this maintains the great the pressure on the US2000.

Chart 2

Trade the News: View our Economic Calendar

Chart 2 shows the relative strength between the US2000 and the SPX500 for the year-to-date. Clearly the US2000 has lagged the larger-cap SPX500 index.

The large-cap indexes have mainly gained from the AI-driven surge in tech stocks. Investors hoping for a broader rally have been optimistic about small-cap stocks, which are more linked to the economic cycle. They expected these stocks to do well as concerns about a recession or a sharp economic slowdown due to the Federal Reserve's aggressive tightening policies were replaced by resilient economic data.

However, despite the optimism surrounding better-than-expected economic data there has been persistent weakness, due to higher-for-longer concerns. Next week, the Fed is likley to hold rates but the rhetoric is likley to remain hawkish. This will likely keep the pressure on the US2000.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

${} / ${getInstrumentData.ticker} /

Exchange: ${}

${} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.