The iShares Russell 2000 ETF (IWM) has dropped into a technical correction after falling by over 11% from its highest level in 2024. It retreated to $214, its lowest level since September last year, lagging behind its top peers like the S&P 500 and Nasdaq 100 indices. So, will the small cap companies rebound?
Small cap stocks hit by rising bond yields
The iShares Russell 2000 ETF has retreated in line with the ongoing performance of the US and global equity market. Top indices, including the S&P 500, Nasdaq 100, and Dow Jones have pulled back sharply in the last few days.
Other global equities have also plunged this year, with the Nikkei 225, Hang Seng, DAX 40, and CAC 40 being in a correction.
These indices have fallen by sharply because of the ongoing sell-off in the bond market that has pushed yields higher. In the United States, the 5-year, 10-year, and 30-year bond yields have all jumped above 4.6%.
These stocks sold off more after the last Federal Reserve meeting in December when officials decided to cut rates by 0.25% and embrace a more hawkish tone. In that meeting, they hinted that they will deliver just two cuts this year, abandoning the aggressive easing stance they had hinted before.
Small cap companies that make up the IWM ETF are usually the most negatively affected in an era of high interest rates. That’’s because many of these companies are smaller firms that are not yet profitable.
Also, these companies are much different from those in key indices like the Nasdaq 100 and S&P 500 in terms of their balance sheets. Firms like Apple, Microsoft, and Berkshire Hathaway in an era of higher rates because of their huge cash balances, since their idle cash generates higher interest income.
Small cap companies, on the other hand, often pay more interest than what they receive in form of interest income.
Therefore, the IWM ETF will be in the spotlight as the US releases the upcoming inflation data on Wednesday. Economists expect the data to show that inflation remained at an elevated level in December. Inflation may remain higher this year because of the ongoing Los Angeles fires and the upcoming Trump policies like tariffs and deportations.
Top IWM movers of 2025
Most companies in the iShares Russell 2000 ETF have dropped this year as these risks resin at an elevated level.
Fubo TV stock has soared by 253% this year after the company announced a merger with Disney’s Hulu + Live TV business.
The other most popular gainers in the IWM ETF are companies like Plug Power, Luminar Technologies, Beyond, Teekay Tankers, and Stich Fix. As always, many biopharma companies like Sana Biotechnology, Cerence, Inari Medical, and Immune Bio.
On the other hand, quantum stocks have led the IWM ETF crash after top experts like Mark Zuckerberg and Jensen Huang. Companies like Rigetti Computing, D-Wave Quantum, and IonQ have fallen by over 60%. Other top laggards companies like Soundhound, Airship AI, and Jasper Therapeutics have all plunged.
Russell 2000 index analysis
IWM ETF source by TradingView
The daily chart shows that the IWM ETF peaked at $245 in November last year. It has moved below the 50-day and 100-day Exponential Moving Averages (EMA). The stock moved below the lower side of the ascending channel.
Also, the Percentage Price Oscillator (PPO) and the Relative Strength Index (RSI) have continued falling. It has also moved below the lower side of the ascending channel. Therefore, the index will continue falling, with the next point to watch being the psychological point at $200.
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