It’s almost been a month since Trump’s surprise win on election day November 8th, and people are still pouring money into the stock market. However, looking closer you’ll see that although everything seems to be going up right now there’s a clear leader of the group; the small caps.
Small public companies are getting a huge boost because they’re seen as the most likely to benefit from a Trump administration come 2017. Small cap companies have less exposure overseas, and because of the way they are their inherently more exposed to the domestic economy. Investors are betting that Trumps potential plans will help stimulate growth domestically which should in turn help the small caps.
Trump has promised to spend a lot fixing the American infrastructure including roads and bridges which should stimulate growth here in the US. He has also touted pro small company idea like cutting taxes and lower regulations so that companies can work more freely. Both of these should help small caps since larger cap companies are usually more able to take hits from regulation and taxes while staying afloat. If implemented, these types of ideas from Trump should help stimulate the local economy.
How much more are investors betting on small caps?
The recent Trump rally since the election has been mostly broad based, but it is more heavily weighted towards the small caps. Just to keep things simple and compare, the average increase in the past month’s rally has been about 12% for small caps. In comparison the large caps have been at about 3%, and the mid caps are at 6%. So even though everything seems to be going up recently it’s pretty clear that Small caps are leading the way.
Another thing that Trump has talked about in his campaign was his promise to keep jobs in America and to punish the ones that do otherwise. Trump has mentioned that he would have tariffs on goods that were imported from overseas which could spark a nasty trade war that would in turn hurt larger companies that have multinational exposure. This would be to the benefit of small caps who usually do most business here at home.
There’s still a lot of questions going forward with the new Trump administration coming in, but for now investors seem to be betting on home team growth. There’s still lots of time to see what actually happens though once Trump actually takes office. It remains to be seen what policies Trump actually tries to put through, and if his campaign was any indication we’re probably in for a few surprises.