The ‘Trump Trade’ is the force driving small-caps higher, Wells Fargo says

seekingalpha07-17

Wells Fargo Securities said Tuesday, a climb in small-cap stocks as measured by the Russell 2000 (RTY) is being fueled by strengthening expectations of a White House win by former U.S. President ...

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The Russell 2000 (RTY)(IWM) on Tuesday was on track for its fifth consecutive advance, and has broken out above a +2-year trading range since a rally began last week. On Tuesday, the Russell 2000 (RTY) was on track for a fourth straight outperformance over the S&P 500 (SP500)(SPY)(VOO). “Political winds” that overpowered worries about corporate earnings pushed the Russell 2000 (RTY) up 1.8% on Monday, Christopher Harvey, equity analyst at Wells Fargo, said in a Tuesday note.  Monday was the first trading session after Saturday’s assassination attempt on Trump in Pennsylvania. Citing polling site RealClear Politics, Harvey said after that event, the probability of Trump winning back the presidency shifted to a cycle-high of 66% from 57% a week ago. Small-cap financial stocks on Monday rose +3% and energy stocks gained 1.9% and those two sectors arguably stand to benefit most from a Trump win, Harvey said. “For regulation-heavy sectors (e.g., Financials, Energy) this is a positive development that could shift the focus from earnings to valuation multiples,” he said, adding that Wells Fargo is monitoring market reactions from the ongoing Q2 earnings season. “For now, bad company news has been priced as bad news. Our focus has shifted to determine if political winds will cause investors to look through near-term bad news,\" he said.  Small-cap stocks started climbing last week, with a 3.6% jump Thursday after cooling in the June Consumer Price Index bolstered bets the Federal Reserve will start rate cuts in September. Harvey said they had considered the post-data jump in small-cap, Value and cyclical stocks as a “pop” rather than the start of a sustained market rotation as it appeared investors were still skeptical about earnings for the average company. Monday’s outperformance by small caps looked “less about the Fed/rates and more a function of the ‘Trump trade,’” Harvey said.   The Russell 2000 (RTY)(IWM) was up +2% during Tuesday’s session, while the S&P 500 (SP500)(SPY)(VOO) rose 0.3%.  ETFs focused on small-caps include (IJR), (VB), (VBR), (SCHA) and (SPSM).","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.0","shortVersion":"4.29.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2452945052"}