The shifting political landscape in the United States has always had profound implications for the economy and the stock market. The Trump administration, in particular, has been a catalyst for change, invigorating different sectors of the market in diverse ways. This article explores how the policies enacted during this era, especially regarding economic deregulation and localization, have created favorable conditions for both large financial institutions and small-cap stocks.
Big Banks Benefit from Deregulation
The financial sector, particularly large-cap banks, stands to gain significantly from the Trump administration’s deregulation agenda. Analysts predict that reduced regulatory burdens will foster an environment ripe for mergers, acquisitions, and initial public offerings (IPOs), potentially leading to sustained growth for the sector. Notably, industry experts have pointed out that prior to the administration’s arrival, these banks were already showing strong fundamentals and attractive earnings prospects. As a consequence, major players like Goldman Sachs, JPMorgan Chase, and Bank of America are now experiencing record high stock prices, signaling investor confidence in their resilience and profitability.
John Davi, founder and CEO of Astoria Portfolio Advisors, emphasizes the importance of focusing on these money center banks, suggesting that they represent the best prospects for investors looking to capitalize on the current market conditions. His advocacy for the Invesco KBW Bank ETF showcases the collective strength of these financial powerhouses. The ETF, which includes those major banks among its top holdings, has demonstrated impressive performance—up nearly 10% since the beginning of the year and boasting a staggering 49% increase over the past 52 weeks.
On a contrasting note, small-cap stocks are also poised for prosperity in the current economic climate, albeit for different reasons. VettaFi’s Todd Rosenbluth highlights the unique advantages these smaller companies possess amidst increasing focus on reshoring and the looming threat of tariffs. Unlike their larger counterparts, small-cap firms typically have less global exposure, which means they can adapt more swiftly to a revitalized focus on domestic production. This positioning allows them to capitalize on initiatives aimed at strengthening the U.S. economy.
For investors interested in tapping into this segment, Rosenbluth recommends several ETFs that target small to mid-cap stocks, each poised to benefit from these conditions. The T. Rowe Price Small-Mid Cap ETF and Neuberger Berman Small-Mid Cap ETF represent attractive options. Additionally, the VictoryShares Small Cap Free Cash Flow ETF offers a unique investment proposition with a strong focus on quality companies that are trading at discount prices but exhibit favorable growth potential. The fund prominently features biotech firms, reflecting the ongoing innovation in the healthcare sector.
The performance of the VictoryShares ETF reinforces the growing interest in small-cap stocks, as it is reported to be up close to 10% year-over-year. In contrast, the Russell 2000 index, which represents a broader sampling of small-cap stocks, has only risen 17% in the same period. This highlights the selective nature of small-cap investing, where an emphasis on quality and cash flow can lead to enhanced returns for discerning investors.
The potential for small-cap stocks to flourish in an America-first economic mindset dovetails with the overarching narrative of the Trump administration. As policies that promote domestic growth continue to unfold, small-cap companies—many of which are integral to local economies—are likely to play a pivotal role in this landscape.
As the Trump administration continues to shape economic policy, the resulting effects on various market segments become increasingly clear. Big banks have rebounded significantly due to favorable regulatory changes, while small-cap companies are thriving by honing in on domestic opportunities. Together, these dynamics provide a unique investing landscape that caters to different investment strategies and risk appetites. Whether one is inclined to invest in stable financial giants or agile small businesses, the current market offers multiple pathways to potential returns in an era defined by significant economic shifts.