The Russell US Indexes are designed to reflect the ever-changing US equity market, and the annual reconstitution process is critical to maintaining accurate representation.

During this highly-anticipated market event, the breakpoints between large, mid and small cap are redefined to ensure market changes that have occurred in the preceding year are captured. Companies are also revaluated to determine where they lie along the investment styles spectrum. 

Beyond growth equity: Large cap hyper growth in a time of change Ross French, CFA, CQF - Senior Research Analyst (FTSE Russell), David Mazza, Managing Director, Head of Product (Direxion) [[ webcastStartDate * 1000 | amDateFormat: 'MMM D YYYY h:mm a' ]] 45 mins

As we near the completion of our annual Russell US Indexes Reconstitution, major market operators Cboe Global Markets and CME Group have observed increasing levels of US small-cap market volatility and growing volume in derivatives linked to the US small-cap Russell 2000 Index.

After a relatively flat start to the year, the Russell 2000 fell 40.2% from February 24 through March 23 as global pandemic fears hit the western world. And, amazingly, the Index has now risen 37.3% from March 23 through Friday, June 12. The Cboe Russell 2000 Volatility IndexSM (RVXSM), a key measure of near-term volatility conveyed by Russell 2000 Index options prices, has reflected this dramatic shift, more than doubling its average daily closing price from 2019 (18.6) to 2020 (38.7) year-to-date as of June 12, averaging 49.8 since the beginning of March.

Total US equity market capitalization down 1%, yet market cap of ten largest US stocks up more than 23%.  Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) decreases by more than 16%. Smallest US company falls below $100 million for first time since 2009. ? Technology-dominated five largest companies remain the top five, with three topping $1 trillion and Microsoft again the largest US company. 

By Philip Lawlor, head of Global Markets Research

Investors have decisively turned their sights to 2021 recovery prospects, even as consensus 2020 EPS forecasts have continued their steep downhill slide. Signs that the negative revision cycle may be slowing offer a positive note.

As the table below shows, the swing in consensus 2020 EPS forecasts to negative growth has been most severe for the Russell 2000, FTSE Europe ex UK and FTSE UK, while emerging markets are seen posting much smaller gains than previously projected. At the same time, however, expectations for a robust global EPS recovery in 2021 have continued to rise. The anticipated turnaround for the Russell 2000 next year is particularly striking.

Regional consensus EPS growth forecasts (YoY % change)

Source: FTSE Russell / Refinitiv. Data as of June 15, 2020. Past performance is no guarantee to future results. Please see the end for important disclosures.

Caveats apply

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The COVID-19 crisis has impacted asset valuations, increased volatility and led to reduced liquidity in many cases. Most asset classes have been affected, and governments have stepped in to support financial operations. In this paper, we examine the effects of the crisis on the year-to-date liquidity of USD corporate bonds, as measured by the price liquidity ratio.

The price liquidity ratio calculated by Yield Book looks at market impact and measures the movement in price of a security for an executed trade of a given size. The price movement is calculated on an excess of curve basis, and then aggregated across the given index or sector. A higher ratio represents a larger movement in price for a given trade size and therefore shows lower liquidity.

 

By Robin Marshall, director of fixed income research, FTSE Russell

Pre-COVID-19, the US housing market appeared robust…

Before the COVID-19 shock, several factors combined to suggest the US housing market was more robust than in 2008. These factors were (1) greater financial regulation in mortgage finance since the Global Financial Crisis (GFC), (2) lower borrower leverage, (3) a smaller share of non-agency mortgage issuance after the sub-prime bust, (4) homeowners with greater equity in housing valuations, (5) absolute mortgage rates much lower than in 2008, helped by lower US Treasury yields, and (6) US unemployment at 40-year lows. Nor was the US housing market at the epicenter of the 2020 crisis and recession, as it was in 2008. So, although the primary/secondary mortgage spread spiked early in the COVID-19 crisis, taking mortgage spreads back to 2008 highs as Treasury yields collapsed, parallels drawn with the GFC in 2008 appeared misplaced.

US...

By Catherine Yoshimoto, director, product management 

Last Friday we announced anticipated changes to the Russell US Indexes for its 32nd annual Russell Reconstitution. While markets continue to change and evolve from year-to-year, the Russell Reconstitution has ensured that the Russell US Indexes continue to accurately measure the US equity markets for the more than $9 trillion in investor assets that follow them.

Every year in June, markets focus on the Russell rebalance for a scorecard on the current state of the US equity markets and “Russell Recon” always has an interesting story to tell. This year is no exception, with market watchers predicting record volume for Friday, June 26—rebalance day—due to significant market shifts in recent months.

Changes to the Russell US Indexes this year tell a very interesting story about the US equity market during a unique time in our history.

The big got bigger and the small got smaller

Although...

JSE and FTSE Russell's Fixed Income Indexes Partnership Waqas Samad, CEO of FTSE Russell; Mark Randall (JSE); Robin Marshall, Scott Harman and Gary Rynhoud (FTSE Russell) [[ webcastStartDate * 1000 | amDateFormat: 'MMM D YYYY h:mm a' ]] 90 mins

According to new data from FTSE Russell, a focused factor index targeting companies with high growth, quality and momentum scores and avoiding those with poor value and volatility scores has outperformed the broad US large-cap equity market over time.

We recently compared performance over the past 16 years for our focused factor index, the Russell 1000® Hyper Growth Index, to its parent, the US large-cap Russell 1000® Index.

Ross French, senior research analyst at FTSE Russell:

“The multi-factor Russell 1000® Hyper Growth Index offers a different lens on large-cap growth, beginning with the US large-cap universe and selecting companies that offer consistent and sustainable growth while neutralizing exposure to volatility. The new Index is designed to capture cash flow growth as well as standard growth metrics, which means it measures companies with higher quality growth, positioned to continue to grow in the future."

David Mazza, managing...

The 2020 Russell US Indexes Reconstitution, which officially began with “rank day”, May 8th, and concludes Friday, June 26, underscores a notable divergence between the large and small ends of the US equity market.

FTSE Russell’s June 5 announcement on projected changes to the Russell US Indexes, followed by approximately $9 trillion in investor assets, points out that in a year in which total US market capitalization decreased by 1%, the market capitalization of the 10 largest US companies increased by more than 23%. In fact, three companies (Microsoft, Apple & Amazon), surpassed $1 trillion in size as of May 8 rank day.

The market capitalization of the smallest US company this year (Limestone Bancorp), on the other hand, is $94.8 million, representing a 38% decline in the smallest company from 2019 and the first time since 2009 that the smallest stock's market capitalization is less than $100 million.

Catherine Yoshimoto – director,...

2020 Russell US Indexes Reconstitution: Unlike any seen before? Jermal Chandler (Cboe Options Institute), Amy Whitelaw (BlackRock), Philip Lawlor and Catherine Yoshimoto (FTSE Russell) [[ webcastStartDate * 1000 | amDateFormat: 'MMM D YYYY h:mm a' ]] 60 mins

Total US equity market capitalization down 1%, yet market cap of ten largest US stocks up more than 23%.  Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) decreases by more than 16%. Smallest US company falls below $100 million for first time since 2009. ? Technology-dominated five largest companies remain the top five, with three topping $1 trillion and Microsoft again the largest US company. 

Total US equity market capitalization down 1%, yet market cap of ten largest US stocks up more than 23%.  Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) decreases by more than 16%. Smallest US company falls below $100 million for first time since 2009. ? Technology-dominated five largest companies remain the top five, with three topping $1 trillion and Microsoft again the largest US company. 

HOST: MARK LONGO, THE OPTIONS INSIDER MEDIA GROUP CO-HOST: SEAN SMITH, FTSE RUSSELL CME HOT SEAT: DEREK SAMMANN, SENIOR MANAGING DIRECTOR, GLOBAL HEAD OF COMMODITIES & OPTIONS PRODUCTS AT CME GROUP