Trump is the 45th President of the United States contrary to anything the #Notmypresident camp might want to believe. The more interesting trend is that U.S. stocks are mostly booking gains after the news of Trump’s victory broke despite the fact that Wall Street had predicted doom and gloom if Trump won. Of course, Trump won’t drop his shenanigans overnight and the likes of Amazon.com Inc (NASDAQ:AMZN) and Apple Inc (NASDAQ:AAPL). can expect some rough patch down the road.
Yet, for the most part, Trump’s victory has been helped the average investor book gains from the stock market. Yet, some analysts are skeptical about what a Trump presidency might mean for traders and investors. This piece explores the emerging market trends that could help your portfolio remain profitable under president Trump.
Is the rally in equities over stretched?
Some analysts have voiced concerns that the post-election market rally after the surprise Trump win is too fast and gone too far. The analysts think it will be futile for any investor who didn’t catch the first wave of the market rally to make a play for equities now in the hopes of catching a late wave.
David Kelly, chief Global strategist at JPMorgan Funds is still doubtful about the market rally and he observes that “It is worth asking whether investors are, yet again, underestimating uncertainty.” Kelly also observes that “While Mr. Trump’s tone has been conciliatory since the election, his many changes of position during the election campaign beg the question of how aggressively he is going to pursue his stated agenda.”
A Morgan Stanley strategist, Andrew Sheets also thinks the post-Trump rally is too immature and overrated. In his words, “there remains a great deal of uncertainty over what type of president Trump will actually be. In an election that was dominated by coverage of tweets, videos and emails, policy questions received surprisingly little airtime”.
Small caps stocks are the biggest winners here
The news of Trump presidency is lifting all the boats in the equities market but it seems that small caps are recording the biggest gains here. To start with, the S&P Small Cap 600 Index (SML) has scored a massive 8.8% gains since the market closed on Nov 8. More so, the Russell 2000 Index (RUT), which tracks 2000 of the smallest firms in the Russell 3000 boast 8.3% gains since the markets closed on Nov 8.
FactSet reveals that investors are thinking small in order to book gains under Trump. About $6 billion in inflows has moved into the iShares Russell fund in the last one week and the fund recorded $2.14B inflow on Monday alone. In contrast, the S&P Fund has inflows of $1.4B in the last one week. The S&P Fund had an outflow of $411.4M on Monday – your guess is as good as mine is on where the money went.
One of the main reasons behind the increased bullishness in small caps is that the protectionist tendencies of Trump presidency could provide a strong boost to the U.S. domestic economic outlook. U.S. small caps firms tend to have lesser global footprints than larger caps and those small caps often make a large part of their revenue stateside. Hence, gains in the domestic U.S. economy will profit small caps.
Hank Smith, chief investment officer at Haverford Trust observes that “A lot of what Trump says, on lowering taxes and regulation, is pro-growth, but his rhetoric on trade is not… If he goes about trying to increase tariffs or incites a trade war, that would favor small stocks, which are domestically orientated, at the expense of the multinationals that make up the S&P 500.”
This article is not intended as individual or reader-specific investment advice. Do your own research and consult a financial professional, if necessary, before investing in anything.