The Russell 2000 index has been in a strong bearish trend as the fear and greed index dropped to the extreme fear level. It dropped to a low of $1,687, which was the lowest level since October 3. The small and mid-cap index has dropped by 24% this year, meaning it has underperformed the blue-chip Dow Jones and S&P 500 indices.
There is a sense of fear in the financial market as investors remain concerned about numerous things. As a result, the fear and greed index has plunged to a low of 19, meaning that investors are extremely fearful.
A look at the key sub-indices shows that market momentum, stock price strength, stock price breadth, market volatility, and junk bond demand have all moved to extreme fear. At the same time, safe-haven demand and put/call options have moved to the fear level.
The fear and greed index is usually geared towards the S&P 500. However, the S&P 500 has a close correlation with Russell, Nasdaq 100, and Dow Jones. Therefore, this fear is mostly because of the Federal Reserve and the ongoing events in the UK, where the bond market is struggling. Investors are also unsure about how the war in Ukraine will end.
The next key catalyst for the Russell 2000 index will be the bank earnings season which will start on Friday. Analysts expect that banks will report solid revenue growth, helped by higher interest rates. However, profit growth could continue struggling because of the falling investment banking and higher reserves.
The first banks to report will be JP Morgan, Citigroup, and Wells Fargo. These banks have over $10 trillion in assets, representing about 67% of all globally systemic banks. Historically, their results tend to set the tone for major indices.
Russell 2000 Short (Sell)
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