For the first time in five years, the Russell 2000 Index (IWM) hits record highs while bitcoin which usually comes out on top in tandem, is out of sync and remains 27% below October’s record. History suggests that the largest cryptocurrency and cryptocurrencies as a whole are likely to catch up.
The Russell 2000 Index, a gauge of small-cap U.S. stocks, hit a record high Thursday, as did measures of big companies like the Dow Jones Industrial Average (DJIA) and the S&P 500. The Nasdaq 100 is just below its all-time high and metals, led by silver, are also hitting record highs.
Since 2020, new highs in the Russell 2000 have generally coincided with new highs in Bitcoin. . This alignment was evident in November 2021, when bitcoin peaked at $69,000. It reemerged in early November 2024, when bitcoin surpassed $90,000, and again in mid-October when it jumped to $126,000. Both hit rock bottom on November 21.
Milk Road Macro noted on X that smaller, riskier companies are more sensitive to interest rate changes than large-cap stocks. This sensitivity is particularly important after the Federal Reserve’s 25 basis point cut on Wednesday. Expectations for Russell 2000 earnings per share growth in 2026 are exceptionally strong, around 49%, according to Goldman Sachs.
At the same time, the market is currently pricing in another 50 basis points of rate cuts for the next 12 months, according to the CME Fed Watch Tool. This would give further impetus to riskier assets, such as cryptocurrencies.
The Fed starts buying Treasuries
Another source of liquidity is the launch of the Fed’s Treasury bill purchasing program. That begins later Friday, according to ZeroHedge, starting with $8.2 billion under its reserve management program.
The purchase is part of a larger $40 billion Treasury bill purchase plan, launched Dec. 12, alongside the reinvestment of maturing agency securities, signaling a new injection of liquidity into money markets.
