Dow Jones and Russell 2000 Are Joining the Stock Market Party. Would It Be a Game Changer for the Bulls?

The S&P 500 and Nasdaq Composite both closed at new record highs on Thursday, fueled by a stronger-than-anticipated jobs report that lessened the likelihood of a Federal Reserve interest rate cut in July. However, it wasn’t just the tech-heavy and large-cap indexes making moves—other parts of the market are finally catching up.

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After months of lagging behind, the Dow Jones Industrial Average and the Russell 2000 are showing signs of life. On Thursday, the Russell 2000 index of small-cap stocks turned positive for the year for the first time since February, thanks to a rally that began in June and has accelerated into July. The Dow also posted gains, adding to a broader rally across U.S. equities.

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Small-cap stocks have long underperformed their larger counterparts, with several failed attempts at breakouts over the past two years. But some investors are growing more optimistic that this time could be different.

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Analysts at Barclays noted in a recent report that a proposed change in President Trump’s budget bill—specifically, a provision to increase interest-expense tax deductions—could significantly benefit smaller companies, which tend to carry higher interest costs. According to Barclays, this adjustment could lift small-cap earnings by double digits.

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Craig Johnson, chief market technician at Piper Sandler, said this shift toward broader market participation is a “healthy sign.” Speaking with MarketWatch on Thursday, Johnson explained that more involvement from small-cap names suggests investors are expanding their interest beyond the tech sector, which dominated market gains in 2023 and 2024.

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Johnson also pointed to a key technical indicator he tracks—a comprehensive advance-decline line that measures market breadth. This line, which includes more than 4,000 stocks and excludes exchange-traded funds (ETFs), recently returned to record levels for the first time since 2021. Typically, advance-decline lines rise when more stocks participate in rallies, which supports the idea of a broadening market.

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Within the S&P 500, sector leadership has already begun to change. Since the start of 2025, industrials and financials have emerged as the top-performing sectors, edging out the dominant tech stocks that led earlier gains. This shift may indicate that investors are seeking value in areas that have been overlooked, targeting stocks that appear inexpensive relative to expected earnings.

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Ryan Detrick, chief market strategist at Carson Group, echoed this sentiment. “There’s an old saying that the lifeblood of a bull market is rotation and participation,” he said in an interview. “To see the underloved area of small caps, specifically, finally participating is just another sign that this bull market continues to broaden out, which should be good for the overall structural bull market that we’ve been in for two years now.”

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Still, not everyone believes this recent rally is a definitive turning point. Tom Essaye, founder of Sevens Report Research, cautioned that investors shouldn’t automatically increase their exposure to stocks just because the Dow is near record levels.

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While the Dow’s strong performance is a positive sign, he noted that it represents only 30 large-cap companies and doesn’t offer a complete picture of market health.

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Essaye argued that more meaningful progress would come from record highs in the Russell 2000 or the equal-weighted S&P 500 index, both of which provide a broader view of market performance. While both have recently moved closer to their previous highs from November, they still have ground to cover before establishing new records.

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Another factor to consider is the Dow Theory, a classic market indicator that has yet to fully confirm the current rally. While a new high in the Dow Industrials would meet one condition of this century-old theory, the Dow Transportation Average also needs to hit new highs for a full bullish confirmation. So far, the transportation sector has lagged, with the index trending downward in recent sessions.

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On Thursday, all four major indexes ended in positive territory. The Dow gained 344.11 points, or 0.8%, closing at 44,828.53. The Russell 2000 rose by 22.66 points, or 1%, finishing at 2,249.04. The S&P 500 advanced 51.93 points, or 0.8%, closing at 6,279.35. Meanwhile, the Nasdaq climbed 207.97 points, or 1%, reaching 20,601.10.

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Together, these gains indicate a potentially healthier and more balanced market, as leadership expands beyond mega-cap tech stocks. While caution remains warranted, especially with lingering uncertainties like interest rates and global economic conditions, the recent broadening of the rally has given market bulls something to cheer about.

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