The Russell 2000 Will Get Volatile as it Rebalances

russell 2000 rebalance

Greetings, again from Baltimore. I’m currently sitting in the ghost town known as the Baltimore Hilton. I should probably just pay rent here. But then again, I’m one of the few people who are hanging around this hotel.

Airports are packed. I’ve never seen Baltimore-Washington International (BWI) airport more crowded than when I arrived on Saturday. But this hotel… and the hotels around me… are quiet. Too quiet. I am unsure if it’s just Baltimore hotels or this is happening elsewhere. Are people staying in Airbnb UNITS? Are they crashing on their friends’ and families’ couches? I don’t know yet. I’m heading to Chicago in three weeks. I will have more.

The Russell 2000 Rebalance

In three weeks, the Russell 2000 will rebalance. That’s common for a major index now and then. But this time is different.

You see, the AMC Entertainment (NYSE:AMC) is poised to be the top-weighted stock on the Russell 2000 when it rebalances on June 25. If you haven’t noticed, AMC has been on a wild ride over the last month. On Friday, the stock had a market capitalization of $21.5 billion.

On May 7, the market cap was $7.3 billion. That figure and date are important because they determine the weight and size of the stock on the index. By comparison, the second-largest stock on the index is just $8.1 billion.

This is a wild time for the Russell 2000 rebalance because of what it represents. AMC has been the top meme stock of May and June. Russell’s weighted average market cap did decline as well by $700 million to $3.2 billion. In addition, the index is reducing its exposure to consumer discretionary stocks in hotels, travel, and leisure. On the other hand, it is increasing its weight in healthcare – which has remained under pressure as a sector – by 2.1%. Pay close attention, especially if you trade the “IWM” – an ETF that aims to replicate the performance of the Russell 2000.

We could see some volatility in the weeks ahead for the index. This will impact our daily checks on the 5-13 exponential moving average (EMA). I think that if you’re going to be going long in this index, now is the time to take advantage and set a limit order down to around $210 or sell cash-secured puts at that level to boost your income.

And Finally…

I promised you a story. Today is my father’s 80th birthday. My father worked for an S&P 500 company and finished his days in the C-Suite. But back in the late 1970s, he ran the sales team for the company.

The story goes that he was put in charge of a bar and restaurant at the Hunt Valley Inn in Hunt Valley, Maryland. The company owned the hotel and restaurant. It was a place where sales teams gathered, did business, and created a big social scene.

So, while he’s running this bar and restaurant, he’s also buying pepper and other spices by the pound and selling them by the ounce to customers. Well, this bar and restaurant got very popular. Not just with the employees but other people in the Maryland area.

One Friday night, the Chairman of the company, who lived nearby, received a phone call that said that the bar was at capacity. People were spilling out the doors. Music was blaring. The bar was three people deep.

The Chairman arrives at the bar and finds my father. “Dorsey, you need to get some people out of here. They’re going to call the fire marshal,” the Chairman said. My father grabbed the Chairman by the tie and led him through the crowded bar.

He pushed through the crowd. Finally, they arrived at the bar, where a man was lying on the bar. His shirt was off, and someone was pouring alcohol into his mouth. My father tapped the man on the arm, he sat up and smiled at my father.

“Buzz,” my dad said to the Chairman as he pointed to the man on the bar. “I’d like you to meet the fire marshal.”

There is a book out there called Pepper People that tells the stories about his company in the 1970s. It would make for a great movie. Unfortunately, it ends the day that my father found out that I was born. Given that I am 11 years younger than my nearest sibling, my father thought they played a practical joke on him when my mother called to deliver the news.

We’ll be having a great time tonight.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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