LIVE MARKETS-Jefferies' DeSanctis sees another 8% gain for the Russell 2000 this year

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JEFFERIES' DESANCTIS SEES ANOTHER 8% GAIN FOR THE RUSSELL 2000 THIS YEAR

After the Russell 2000 .RUT marked a record closing high on Thursday, Jefferies equity strategist Steven DeSanctis raised his target for the small cap index and started his research note with the words "Don't fight the Fed."

DeSanctis said in a research note issued late on Thursday that he now expects the RUT to hit 2665 by year-end, implying an 8% increase from Thursday's close, powered by above consensus earnings growth of 5.5% for 2025. DeSanctis said the prior 4% target for earnings growth seemed too low even though it was already head of the Street forecast for 3.3% growth, he said.

Prior to Thursday's move, Jefferies had started the year with a 2715 year-end target, which it dropped to down to 2200 after Liberation Day, when the market went into crisis mode after U.S. President Donald Trump first announced hefty import tariffs.

DeSanctis noted that when the RUT broke a long dry spell on Thursday after having had gone 967 days without a new high. Its last closing high was in November 2021.

The small cap index was boosted by the Federal Reserve's Wednesday announcement that it was cutting interest rates and its indication that more cuts are coming. Smaller companies are highly sensitive to interest rate changes since they depend so much on borrowing.

In the wake of the "Liberation Day" meltdown, DeSanctis had moved to favor domestic stocks - with <20% of revenue coming from outside the U.S. - rather than foreign stocks.

But since the market low, he notes that domestic names have gained 30.5% vs. 53.6% for names with high foreign sales. So he said: "We take the mulligan, moving back to names with more overseas exposure."

And the strategist also points out that those stocks tend to outperform after Fed cuts, and beat domestic stocks when GDP is >2%, with Jefferies' target for 2026 at 2.2%.

However DeSanctis said: "The one knock is Domestic is cheaper."

On Friday the RUT shied away from its record a little and was last down 0.6%.

(Sinéad Carew)

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