Yesterday, small caps, as represented by the Russell 2000, closed up an impressive 5.8%, marking the 27th best one-day return since 1979. Let’s put this into context and explore what it might mean for the market moving forward.
How Rare Are These Moves?
Over the past 45 years, spanning more than 11,500 trading days, daily returns exceeding 5% for the Russell 2000 have only happened 34 times. That’s right—just 34 out of over 11,500 days! Clearly, yesterday’s surge was extraordinary.
Rarer Still: An Uptrend Catalyst
Even more exceptional is that this 5.8% rally occurred during an uptrend with the Russell 2000 above its 200-day moving average. Historically, only 3 other instances have seen a 5%+ gain happen in an uptrend, making this event remarkably unique.
What’s Next for Small Caps?
Historically, these massive one-day gains often bring heightened volatility in the days that follow. Yet, over the longer term, strength tends to be a good sign. While the risk-reward profile would have been more favorable if this happened in a downtrend, small caps have historically outperformed over one-year periods following such gains—regardless of the trend.
