Goldman Sachs tip the Russell 2000 to shoot way ahead of S&P500 in the next 12 months

<p>Goldman Sachs cite their model for tipping Russell 2000 outperformance ahead:</p><ul><li>Russell 2000 should rise by 14% during the next 12 months, according to a simple model based on US economic growth and starting valuations that has explained roughly two-thirds of Russell 2000 returns between 1995 and 2015</li><li>S&amp;P 500 forecast of + 9%</li></ul><p>GS reason that the Russell 2000 appears attractive as its valuation is below the historical average. Adding that P/E multiples have typically been weak indicators for Russell 2000 performance because many companies are not profitable or lack analyst forecasts</p><p>GS does outline 3 near-term macro headwinds that the Russell 2000 faces</p><ol><li> the small cap index is very sensitive to GDP growth, which the Fed aims to control in order to fight off inflation, thus there is a risk that US economic growth will govern the path of the Russell</li><li>The Russell, with its small caps, is vulnerable to interest rates, small caps traditionally have weaker balance sheets, more floating debt, lower margins, and longer durations</li><li>Goldman outlined another potential heawind – sector composition leaves the Russell 2000 Index susceptible to drops</li></ol>

This article was written by Eamonn Sheridan at www.forexlive.com.