The Russell 2000 Index climbed to an all-time high Friday and the Nasdaq Composite Index reached a level unseen since 2000 as an equities rally that started last week continued through one of the slowest trading days of the year.
The Russell 2000 of small-cap companies gained 0.7 percent to a record 1,215.21. The Nasdaq Composite jumped 0.7 percent to the highest level since March 2000, as biotechnology companies rebounded a second day. The Standard & Poor’s 500 Index rose 0.3 percent to 2,088.77. The Dow Jones Industrial Average added 23.50 points, or 0.1 percent, to 18,053.71. About 3.3 billion shares traded hands on U.S. exchanges, the second-lightest day of trading this year. The slowest was on Dec. 24, when the market closed at 1 p.m. U.S. exchanges were closed Thursday for Christmas. Most major markets around the globe were shut today.
“We’ve had quite a run here,” Eric Cinnamond, who manages the $691 million Aston/River Road Independent Value Fund, said by phone from Louisville, Kentucky. “The consensus has been that the domestic economy is improving and small-caps are more exposed to that than large-cap multinational companies. Managers are making sure they’re owning what’s working and the herd mentality is at extremes right now.”
The Russell 2000 and Nasdaq Composite have shown resilience this year. The Russell recovered from a correction that saw it slip 11 percent over a five-week period starting in early September. The index has surged 16 percent since reaching a one- year low on Oct. 13.
The Nasdaq Composite closed below 4,000 twice this year, on Feb. 3 and April 11. It has rallied 20 percent since then, and is now 4.8 percent below its all-time closing high of 5,048.62, set on March 10, 2000. The Nasdaq 100 Index, which jumped 0.7 percent Friday, is about 20 points away from reaching a 14-year high. Even with its 4.4 percent gain in 2014, the Russell still trails the S&P 500 and Dow, growing at less than half the pace.
Both the S&P 500 and the Dow are at records this week after posting their biggest rally in three years. The recent gains are taking the Dow up 1.3 percent for the month and 8.9 percent this year. The gauge has advanced for seven straight days, the longest streak since March 2013. The S&P 500 has risen 1 percent in December and 13 percent for the year.
“Momentum has been building in the last month for small- cap names,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said by phone. ‘It’s merely playing catch up. Given that the Russell has lagged through this year, people are trying to find beta for performance.’’
It hasn’t been a smooth year for small-cap stocks. The Russell 2000 lost 2.8 percent over a three-day period starting July 15 after the Federal Reserve expressed concern about valuations among social-media and biotech companies.
“Valuation metrics in some sectors do appear substantially stretched -- particularly those for smaller firms in the social- media and biotechnology industries,” the central bank wrote in assessing the U.S. stock market.
The Fed’s concern came after small-caps and Internet shares were the biggest victims of a market retreat early in the year as investors dumped the best performers of the bull market.
Small-cap shares also fell faster than the broader market during an August selloff sparked by concern that a selloff in oil prices and slowing growth in China and Europe would hurt the U.S. economy.
The Russell 2000 will trail the benchmark index in 2015, Bank of America Corp. analysts wrote in a note to clients earlier this month. Small-cap companies remain expensive and will appreciate less than larger ones as interest rates increase, the analysts led by Jill Carey Hall said.