Is The Russell 2000 Sending A Warning Signal As S&P Makes New All-Time High

While investors cheer the S&P 500 and NASDAQ making new all-time highs, one warning signal is flashing red.

The warning signal is the Russell 2000 (IWM). This is the broadest index, encompassing 2000 companies. This compares to the Nasdaq 100, with only 100 stocks in it and the S&P 500 with only 500 stocks in it.

The S&P 500 and NASDAQ 100 are ruled by the mega cap stocks. For example, Nvidia (NVDA) and Microsoft, both making new all-time highs have a massive weighting in both the NASDAQ 100 and the S&P 500.

However, when looking at indexes that do not have the mega caps in them (like the Russell 2000) the rally is clearly not happening. The Russell 2000 is 14% off all-time highs.

The reason why investors need to be cautious is because the S&P 500 and NASDAQ at all-time highs is due to a select handful of stocks. This tells us things are not as rosy as one may think for the overall economy.

If the Russell 2000 starts performing better, it will give credence to the rally. However, until that happens, investors should remain very cautious.