US2000/USD

The year has been a rollercoaster ride for Wall Street stocks, from the pandemic troughs in March to record rallies as the year progressed. The US Russ 2000 or the Russell 2000 index of small cap stocks has gained almost 20% year to date. Although the index plummeted below the $1,000 mark on March 18, it has since been on an uptrend. The index spiked in Q4 and breached the $2,000 level on December 23.

Despite the rally, investors are hopeful of significantly better days ahead in 2021, with vaccines being approved and the US government’s stimulus package announced. Several Wall Street analysts, too, are bullish about small cap-stocks, some of which have plunged in 2020. In fact, there are predictions of small caps fairing even better than their large-cap peers as the economy recovers next year.

New orders for manufactured goods rose 1% in October, after growing 1.1% in the earlier month. The reading also marked an increase in orders for the sixth successive month, driven by higher orders for transport equipment. However, the growth rate is expected to decelerate slightly to 0.6% in November.

The ISM non-manufacturing PMI declined to 55.9 in November, from a reading of 56.6 in the previous month. Although November’s reading signalled a weakest rise in services sector activity over the past six months, it remained above the long-term average level of 54.6. Restaurants are seen struggling again following a resurgence of covid-19 cases in some regions. The index is expected to decline slightly to 54.5 in December.

The latest reading for November marked the weakest rise in employment since the labour market started to witness some signs of a recovery in May. The US economy added only 245,000 jobs in November, following 610,000 job adds in October. However, the unemployment rate continued to decline, falling to 6.7% in November, from October’s level of 6.9%. Markets expect an addition of merely 190,000 jobs in December, with the jobless rate forecasted to ease further to 6.6%.

The interest rates are expected to remain at the current record low levels of 0-0.25% at least through 2023. The low-rate environment could exert significant pressur on the US dollar through the first quarter of 2021.

After a jaw-dropping 31.4% contraction in the US economy in the second quarter, the country recorded the fastest GDP growth in its history, of 33.4%, in the third quarter. The growth rate is likely to slow to 3.4% in the fourth quarter due to rising coronavirus cases.

The US stimulus package includes financial aid for smaller businesses, which could propel the US Russ 2000. On the other hand, there are uncertainties around the new government’s policy around corporate tax and regulations, which will influence how small-cap companies recover next year.