Futures on the small-cap-tracking Russell 2000 index jumped on election night, Bloomberg reports. Republican presidential candidate Donald Trump jumped out to an early lead before being declared the winner late. Bloomberg notes that his strong protectionist stance stands to benefit small companies. The day of the election, small caps had closed with big gains.
Details
December futures on the Russell 2000 jumped 4.6% as of 3:10 a.m. in New York. Contracts on the S&P 500 index climbed 1.2%, while futures on the Nasdaq 100 advanced 1.3%, Bloomberg reported.
On Tuesday, November 5, the Russell 2000 and S&P SmallCap 600 indexes, which track the shares of smaller and medium-sized companies, gained 1.9% and 2.0%, respectively. This marked the best session in three weeks for the former, Bloomberg notes.
Donald Trump has already declared victory in the U.S. presidential election. Although votes are still being counted, according to the latest data, he has already secured the minimum 270 electoral college votes needed to win. Smaller companies, which tend not to have overseas operations, have more to gain from a Trump win, given his strong protectionist stance, Bloomberg argues.
Wall Street insights
Investors interviewed by Bloomberg had warned against placing any hard bets on the election outcome before the official results.
— Thomas Martin, a senior portfolio manager at Globalt Investments, suggests that the small-cap rally is not directly tied to the election. He notes that many traders are now looking further ahead, focusing on the economic outlook, inflation, and more Fed rate cuts (another is expected by the end of the year), which bodes well for smaller companies with higher debt loads and less fixed-rate debt.
— Matthew Rowe, the head of cross-asset strategies at Nomura Capital Management, believes that Trump’s plan to cut the corporate tax rate from 21% to 15% would boost smaller companies, whose shares are trading at a discount to large caps.
— Kim Forrest, CIO and founder of Bokeh Capital Partners, points out a potential hole in the logic behind bets on small caps outperforming under Trump. “A lot of small caps have business all over the world. But still investors seem to think small caps equal the U.S.,” she explained.
— Frank Monkam, a senior portfolio manager at Antimo, advises investors to adopt a defensive stance and buy put options on the S&P 500 rather than specific stocks.
