What a good week for the market. Trump’s victory sent markets to all time highs as investors scrambled to get their money in. The S&P 500 traded more than 2% higher while the Nasdaq 100 sat at an increase of over 6%.
Trump’s win suggests that voters trust that he is able to bring a new spark to the economy. Hence, investors have been speculating on companies other than the Magnificent Seven. This is highlighted by the 10% increase in the Russell 2000 index.
Trump has always been a strong advocate of lowering interest rates, being a strong critic of Jerome Powell’s hesitation in lowering them. Once President elect Trump comes into power, he is likely to begin pressuring interest rates to be lowered as soon as possible.
This move would heavily affect the stock market, for the better and worse in different industries. However, the Russell 2000 will benefit significantly from lower rates. Forecasts are currently pointing to the federal funds rate dropping to 2.75%-3% by the end of 2025.
SMID-Cap (Small and Medium-Sized) Stocks
Smaller SMID-Cap stocks have been growing at a faster rate than their large-cap peers, driven by strong earnings growth. Breakthroughs in technology and industrial automation, combined with high levels of M&A activity, has made SMID-cap companies even more dominant. Coupled with the forecasted lowering of interest rates, it might be a good idea to start investing in this area.
The Russell 2000 Index
The Russell 2000 index tracks small cap companies in the US, with an average market cap of $3 billion. While the index is more volatile than large cap indexes such as the S&P 500, there is higher growth potential. Therefore, over the long run, small cap stocks generally outperfom their large cap counterparts.
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