Despite President Donald Trump securing a second term in the White House and promising to stress the domestic economy, small-cap stocks have been lackluster at best. The small-cap benchmark Russell 2000 is up just 1.9% since the November election, while the large-cap S & P 500 has gained 5.3% in that time — reaching an all-time high on Wednesday. Small caps were expected to be major beneficiaries of Trump’s reelection given his platform focus on deregulation and lower taxes. Taxes and regulation compliance tend to have a greater impact on smaller companies’ bottom lines than on larger companies. However, investors have been reluctant to jump head first into the small-cap trade after years of disappointment. The S & P 500 has outperformed the Russell 2000 for the past four years and in nine of the past 11 years. Last year, the large-cap benchmark rose 23%, while the Russell advanced just 10%. That said, while this part of the so-called “Trump trade” isn’t working yet, it still may be laying the ground for future improvement. Wolfe Research strategist Rob Ginsberg noted that every Russell 2000 sector is now higher over the past month after being “deeply in the red” not that long ago, “with further gains looking likely.” “Much of this optimism stems from the chart of the Russell 2000, particularly when zooming out to a 4-5 year look back,” he added. “The index has carved out a compelling multiyear base after several years of choppy, range bound trading and struggles. Should resistance from the highs at 2450 ever get taken out, we think the group could go on a massive run.” The Russell closed Wednesday at 2,303.72, about 6% below the 2,450 level Ginsberg highlighted. .RUT 1Y mountain Russell 2000 past year Elsewhere Thursday morning on Wall Street, Raymond James downgraded Electronic Arts after the video game maker cut its bookings guidance for the fiscal year. “The magnitude of the shortfall is concerning,” analyst Andrew Marok wrote in a Thursday note. “Given the lower visibility into near-term trends in the company’s flagship franchise and the doubts its casts on forward execution, we move to the sidelines.”
The one Trump trade that’s not working yet: Small caps