Russell U.S. Indexes Spotlight - Quarterly Report: July 2025

During Q2, US equities experienced renewed optimism, characterized by large-cap outperformance, with the Russell 1000 surpassing the Russell 2000, and Growth indices notably outperforming Value across both large and small caps, led by Russell 1000 Growth. Technology and Discretionary sectors rebounded, while the 2-year EPS outlook for both large and small caps improved, reflecting a moderation in macroeconomic concerns.

Analysis

US equity markets demonstrated a significant shift in Q2, characterized by a return to large-cap and growth leadership. The Russell 1000 extended its 12-month outperformance over the Russell 2000, while the Russell Top 200 segment reasserted its dominance over the Russell Midcap index after a brief lag in Q1. A key driver of this trend was the pronounced outperformance of Growth indices over their Value counterparts across both large and small-cap segments, with the Russell 1000 Growth index resuming its leadership position. Sector-level performance saw a strong rebound in Technology and Discretionary stocks, which had posted steep losses in the prior quarter. In contrast, large-cap Energy and Health Care were notable laggards, even as most industries posted gains. This renewed optimism is underpinned by a material improvement in the 2-year EPS outlook for both large and small caps, a reversal from Q1, suggesting that investor concerns over macroeconomic headwinds have moderated.

Key Decisions for Investors

• Given the strong outperformance of large-cap growth and the rebound in Technology and Discretionary sectors, investors should consider maintaining or increasing exposure to US large-cap growth equities.
• The notable underperformance of large-cap Energy and Health Care warrants a review of holdings in these sectors, as they are currently lagging in a risk-on market environment.
• Monitor the persistent 12-month trend of large-cap outperformance; while the small-cap EPS outlook has improved, a tactical underweight to the Russell 2000 relative to the Russell 1000 may remain a prudent strategy until a clear trend reversal is evident.