Investing.com — A Trump victory may drive hedge fund buyers towards small caps, which have just lately been monitoring Trump’s betting odds in October, RBC Capital Markets stated in a report.
This commerce has historic precedent, as small cap positioning surged in 2016, 2017, and 2018 amid optimism following Trump’s win, company tax cuts favoring smaller firms, and the US-China commerce struggle.
Small cap futures surged greater on Tuesday evening as election outcomes rolled in, with the index gaining 5.8% by Wednesday.
Strategists at RBC famous one of many key investor questions on Wednesday was how far more room small caps may need to climb.
They instructed that positioning and sentiment may already be considerably stretched, with near highs seen in 2016, 2017, and 2018, in accordance with the most recent CFTC knowledge.
The strategists really helpful monitoring the Russell 2000’s median price-to-earnings (P/E) ratio, which was at 16.7x as of Tuesday, in comparison with earlier peaks of 18.9x in 2016, 19.7x in 2017, and 17.6x in 2018. This means some restricted potential for additional features.
“There’s not a ton of room left, but likely some even after Wednesday’s big move,” strategists wrote.
Wanting again, RBC noticed that small caps outperformed giant caps for a interval following each Trump’s 2016 win and Biden’s 2020 victory, although each rallies have been comparatively temporary.
The 2016 outperformance peaked a few month post-election, adopted by two shorter rallies in 2017 and 2018. In distinction, the 2020 rally lasted about 4 months.
Intriguingly, each intervals of small cap power have been accompanied by rising 10-year Treasury yields.
Trump is about to return to the White Home for an additional four-year time period, alongside his vice-presidential decide, Senator JD (NASDAQ:) Vance of Ohio.
NBC Information initiatives that Republicans are more likely to reclaim majority management of the US Senate in 2025, with not less than 51 seats secured within the 100-member chamber by January, when the brand new Congress is sworn in.
