Tuesday Trouble at 2,300 on the Russell 2000

Small Cap Stock.

The kind that should give us an indication of the health of the broad economy but, according to the Russell 2000 this past year – 2020 could not have been better as our small cap index rallied back from below 1,000 in March all the way to 2,300 early this morning – that's up 130% in 11 months!  Let's say we started the year at 1,600, a 700-point gain is still a nice 43% gain on the year.

We should have a virus every year – is the only possible conclusion we can draw from this action.  The Russell topped out at 1,740 in 2018 and was down 42.5% 18 months later – so it's kind of a finicky index but this is truly amazing though the Nasdaq is up from 9,000 to 13,700 and that's 4,700 points, or 52% but I guess with the Nasdaq we can argue that Tesla (TSLA) and GameStop (GME) deserved their 500% gains in the past year, right?  

The secret, of couse, is to completely ignore the true value of stocks and just assume that, whatever price they are now, they can be higher later.  Fortunately, what can't be higher later is the price/earnings ratio of the Russell, which is pinned at 35 and they cap the p/e measures at 35 so stocks that have p/e's of 1,000 don't throw off the scale but, of course, 35 was a number they picked because it was exreme and ridiculous and it was very unlikely ANY stock would exceed 35 for very long before the public became outraged and dumped it.

Of course, that's not happening at all now and, in fact, almost ALL of the Russell 2,000 stocks now have P/E Ratios higher than 35 so the P/E for the Russell is – 35.  If 1,999 stocks had a P/E of 35 and ONE stock had a p/e of 10, the Russell 2,000's average P/E would be 34.9875 but it's not, NO Russell stock has a P/E of 10 and no 2 are under 15 and no 4 are under 20 and no 8 are under 25 and no 16 are under 30 and not even 32 stocks are even under the maximum P/E of 35 –
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