Russell 2000 confirms correction as rate-cut hopes fade

By Chuck Mikolajczak

Jan 10 (Reuters) - The economically sensitive Russell 2000 small-cap index closed down more than 10% from its most recent November high on Friday, commonly known as correction territory, as investors scaled back expectations for rate cuts by the Federal Reserve following a strong jobs report.

The benchmark index dropped 2.22% to 2,189.23 points on the session, a drop of 10.35% from its recent closing high of 2,442.03 hit on Nov. 25.

The small-cap index has yet to end a session above its record closing high of 2,442.74 points hit in November 2021, which would confirm the index is in a bull market.

U.S. equities tumbled after data showed job growth unexpectedly accelerated in December, while the unemployment rate fell to 4.1% as the labor market ended the year on a solid footing.

The blowout report led to traders paring back their rate expectations for 2025, with most seeing the Fed waiting until at least June to reduce its policy rate, compared to chances of a cut as early as May and about a 50% chance of a second rate cut before the end of the year prior to the data.

Small-caps are seen as vulnerable in a higher interest rate environment as they tend to rely more heavily on borrowing to support growth than their large cap counterparts.

(Reporting by Chuck Mikolajczak, additional reporting by Shashwat Chauhan in Bengaluru; Editing by Rosalba O'Brien)