Is It a Small World After All? Analysts Predict Surge in Small-Cap Stocks Following Trump’s Victory
Analysts are forecasting a strong market rally for small-cap stocks following the recent U.S. presidential election, highlighting their potential to outperform larger indices like the S&P 500. According to Tom Lee, Head of Research at Fundstrat Global Advisors, “small-cap stocks could gain up to 100% over the next several years” due to anticipated pro-growth policies. Lee notes that historically, markets tend to rise following major elections, driven by expectations of favorable policy changes that could spur economic growth.
Small-cap stocks, which have lagged behind larger indices in recent years, stand to benefit from a renewed focus on domestic growth initiatives and potential regulatory easing. The S&P 600 index, comprising smaller market capitalization companies, recently climbed near record highs, signaling increased investor confidence. “The starting valuation point is less onerous, and the expected deregulatory push, along with a domestic manufacturing emphasis, set this asset class up quite well,” remarked Citi strategist Scott Chronert, emphasizing the relative value of small-cap stocks compared to their large-cap counterparts.
Financial experts also point to the bond market’s influence on small-cap performance. Higher bond yields, associated with faster growth rates, have raised concerns about borrowing costs and inflationary pressures. However, many analysts believe that these risks are offset by potential policy measures aimed at stabilizing the economy. The CIO of Fund Capital noted that “inflation may be over,” suggesting that the Federal Reserve could ease interest rates, providing a further boost to small-cap stocks and regional banks.
Small-cap companies are seen as more sensitive to economic growth and policy changes, which could drive their outperformance. “I think small-caps could, over the next couple of years, outperform by more than 100%,” Lee added, expressing confidence in the sector’s potential under new economic policies.
While optimism remains high, some caution is warranted. Morgan Stanley’s chief U.S. stock-market strategist, Mike Wilson, notes that small caps could face challenges if interest rates rise. “Small caps would be likely to underperform if yields were to rise further,” Wilson cautions, highlighting their sensitivity to rate increases in the current economic cycle. He also points out that relative earnings revisions for small-cap cyclicals are currently negative, contrasting with previous periods of outperformance. Despite these concerns, analysts believe the broader rally has further potential, driven by supportive policy and regulatory shifts.
Bitcoin soared to a record high near $90,000 following Trump’s win, with its surge driving up the broader crypto market. Major cryptocurrencies such as Solana and Ethereum also experienced gains, reflecting increased investor confidence and potential regulatory clarity under the new administration.
Energy companies saw a strong uptick, fueled by expectations of reduced environmental regulations. Tech stocks have also rallied, though their gains have been more moderate, as optimism builds around a potentially looser regulatory framework supporting innovation.
For those seeking small-cap opportunities, here are three stocks from the PRISM Emerging Index worth watching.
Crypto and Bitmining Play: Soluna Holdings
Data center developer Soluna (SLNH) is on a mission to solve one of renewable energy’s biggest challenges: wasted power. Their data centers convert excess solar, hydro, and wind energy into productive computational work, such as Bitcoin mining, artificial intelligence, and machine learning. Soluna’s ability to co-locate with renewable power sources provides assistance to power plants that can result in increased revenue while contributing more megawatts to the grid. By 2030, it is expected that demand for computing power will account for 20% of global energy consumption. Soluna is at the forefront of capturing this demand by building data centers that can buy excess renewable energy that would otherwise be wasted, and then provide this power to computing.
Why It Matters: Post-Election, bitcoin neared a new record high of $90K. This crypto-related rally suggests the anticipation of the return to a “crypto-friendly” environment with the incoming of the new administration. Trump’s victory has conjured conversations the regulatory and legislative changes are on the way as the additional need for crypto industry oversight has been echoed.
Oil and Gas Play: Evolution Petroleum
US energy producer, Evolution Petroleum (EPM) is an independent energy company focused on maximizing total returns to its shareholders through the ownership of and investment in onshore oil and natural gas properties in the United States. The company footprint includes basins in Louisiana, Wyoming, North Texas, North Dakota, New Mexico and Oklahoma. Lack of storage capacity relative to demand, limited coal switching ability and renewable intermittency are all factors driving natural gas price volatility. Gas storage capacity relative to demand is near all-time lows. Therefore, price is becoming the only mechanism to balance inventories which should create an improved gas pricing environment. Additionally, as power plants are competing for fuel sources, natural gas prices have significant potential to grow.
Why It Matters: In his previous term, Trump withdrew from the Paris Climate Agreement and pulled back on various energy and environmental regulations. In his second campaign he has indicated his intention to take a similar approach and has vowed to boost domestic oil and gas production through avenues such as opening new lands for drilling.
Defense and AI Play: Evolv Technologies Holdings, Inc.
AI screening systems company Evolv (EVLV) is a leader in AI- powered touchless weapons detection and creator of a proprietary software and hardware delivered as a long-term “Security-as-a-Service” subscription model. Most major venues now require some level of a security check, and in recent years, you may have noticed a better traffic flow. That’s because of a system such as the Evolv Express. The goal is to have a screening system that can differentiate between weapons and personal items without the intrusive layers of pat downs and bag inspections. Evolv currently has over 850+ customers that include various arenas, ball parks, universities and healthcare facilities.
Why It Matters: As AI has ramped since his previous election, Trump has mentioned his intention to review and possibly repeal the Biden administrations AI Executive Order which included AI developmental guidelines. This would loosen the AI regulatory constraints in hopes to boost innovation and allow for increased competition in the AI race with China. Furthermore, sentiment surrounding defense or security related companies has improved in relation to post-election commentary.
