Bank of America Securities suggests that potential economic intervention by U.S. President Donald Trump could benefit undervalued mid-cap stocks. Strategist Michael Hartnett believes Trump is likely to take measures to counter his declining approval ratings. Hartnett predicts the White House will act to prevent annual CPI inflation from reaching 4% and unemployment from rising to 5%. In this context, he recommends investing in attractively priced mid-cap stocks before 2026.
Relevant mid-cap ETFs include: SPDR S&P MidCap 400 ETF (MDY.US), SPDR S&P 400 Mid Cap Growth ETF (MDYG.US), iShares Russell Mid-Cap ETF (IWR.US), and iShares S&P Mid-Cap ETF (IJH.US).
Hartnett also notes that the "Magnificent Seven" U.S. stocks could potentially "swallow" the entire market capitalization of the small-cap S&P 600 (SPSM.US) and mid-cap S&P 400 (MDY.US). Other sectors with strong relative upside potential include those closely tied to the real economic cycle, such as homebuilders (XHB.US), retail (XRT.US), paper, transportation (XTN.US), and real estate investment trusts (XLRE.US).
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