Trump’s return sparks a surge in US small-cap stocks; Russell 2000 near all-time high

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With Donald Trump back in the White House, the markets echo the sentiment that ‘Make America Great Again’ could benefit American businesses. This could be seen in the way the Russell 2000 index has performed around US election results.

On the day, it became clear that Trump had won the US elections in 2024, the Russell 2000 index jumped over 5 percent. Away from the limelight that Magnificent Seven stocks and the Nasdaq-dominated stocks get, the small-cap Russell 2000 index had a tremendous run over the last 12 months. The index is up by 42% over the last 1-year compared to the Nasdaq 100’s run of 36%. In 2024, so far, the index is up by 20%.

The S&P 500, Dow and Nasdaq are all at all-time high historical levels, while the Russell 2000 is nearing its previous record close of 2,442.74 set on November 8, 2021. On November 11, 2024 Russell 2000 closed at 2,434.98.

Trump is thought to support protectionist economic policies that could help small American businesses maintain their market share and expand. The idea of slapping more tariffs on China and other nations to move manufacturing back to America is increasing confidence in US-based small-cap companies.

Trump is also in favour of tax cuts thus benefiting small companies to gain market share resulting in improved earnings.

The performance of small-cap stocks in the US stock market is captured by the Russell 2000 Index. Approximately 2,000 of the smallest stocks, ranked by market capitalization, are included in the Russell 2000 Index. When looking to invest in lesser-known small-cap stocks, one may consider stocks in the Russell 2000 index.

Small-cap stocks may have higher volatility than large-cap stocks, requiring careful consideration of risk-reward ratios. They are riskier due to growth and under-research, gaining market recognition and better valuations.

Small-cap stocks benefit from growing economies and interest rate cuts. With the Federal Reserve cutting rates by 75 bps since September and hinting to further reduce rates, the stage could be set for the Russell 2000 index to move higher.

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