As all eyes continue to be on the president-elect, questions abound regarding if and how he will implement the changes he championed on the campaign trail. In the meantime, however, an article in this week’s Barron’s argues that his election has proved a shot in the arm for small-cap stocks.
That article asserts that, since election day, the small-cap Russell 2000 index has risen 10% compared with the S&P 500’s 2% gain and “the advance of the market’s small fry isn’t over yet.” The following factors are cited:
- On the campaign trail, Trump called for more protectionism and less global trade, both of which support smaller companies which “typically generate less than 20% of sales overseas,” versus larger businesses whose non-U.S. sales usually exceed 30%;
- Trump’s desire to cut the corporate tax rate to 15% would both benefit smaller companies, “which generally don’t have the resources or geographic reach to bring their tax rates much below the 35% federal rate”;
- Reduced regulation, supported by Trump, would help small businesses less able to afford hefty compliance costs;
- Historically, small-caps have outperformed larger ones in rising-rate periods.
The article concludes, “small caps could take a breather after their big run, but don’t be surprised if they outperform large-caps in the next year.”