Russell 2000 Marks Fifth Day Of Gains: What's Driving Surge In Small-Cap Stocks?

FTAI Aviation Ltd. FTAI and Applied Industrial Technologies, Inc. AIT were among small-cap stocks moving higher on Tuesday as the Russell 2000 Index had a fifth straight day of gains.

The iShares Russell 2000 ETF IWM gained 3.41% on Tuesday, ushering the index to a cumulative gain of over 9% across the last five sessions. This remarkable streak represents the Russell 2000's best five-day performance since June 2020.

FTAI Aviation, a provider of aircraft operations and engine maintenance, rose 5.63% to close at $107.42 on Tuesday, while Applied Industrial gained 4.63% to $210.59.

Also Read: Russell 2000 Rallies To 16-Month Highs: Best Performing Small-Cap Stocks Popping Over 80% In December

FTAI Aviation accounts for 0.39% of the iShares Russell 2000 ETF, while Applied Industrial makes up 0.29% share, according to iShares by BlackRock.

Individual stocks in the ETF that countered Tuesday’s small-cap advancement include Lantheus Holdings, Inc. LNTH, which fell 3.97% to $118.30.

The rapid rise of small caps is attributed to the growing conviction that the Federal Reserve will lower interest rates at its September meeting. The Russell 2000 rally kicked off last week, driven by June inflation data coming in below expectations, sparking traders' speculation about rate cuts.

According to the CME Group's FedWatch Tool, fed futures now indicate a full 100% probability of an interest rate cut in nearly two months, marking the first reduction in borrowing costs since 2020. On Monday, Fed Chair Jerome Powell struck a dovish tone, acknowledging that recent inflation reports bolster confidence in returning to the 2% target, effectively hinting at forthcoming rate cuts.

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Image created using artificial intelligence via Midjourney.