Wall Street's main indexes and several of the street's individual favorites like Palantir and NVIDIA soared to record highs following Donald Trump's victory in the 2024 U.S. presidential election, a dramatic return to power after his defeat in 2020. Investors responded with optimism to the prospect of a president known for pro-business policies, including tax cuts and deregulation, despite potential concerns around tariffs and rising deficits.
The presidential election for the United States, probably one of the most awaited events and catalysts in the stock market for the year, is now over and Donald Trump is the President-Elect. The market and different participants have now taken on their views as a conclusion from the results, and it looks like most cyclical names will be in play for investors to consider.
If you're interested in broad exposure to the Small Cap Blend segment of the US equity market, look no further than the iShares Russell 2000 ETF (IWM), a passively managed exchange traded fund launched on 05/22/2000.
Despite the gap between small and large caps widening slightly since my last article discussing their trajectory, I believe that the trade is still on. Small caps are losing volatility and grinding slowly upwards, a good sign for a potential for a breakout. Breaking out may require positive data from the Fed and the economy overall.
IWM is approaching the 2024 high and has a good chance of continuing higher. A strong economy and an aggressive Fed cutting cycle would be ideal for IWM, but they are not mutually exclusive. It may be better off with neither. The current backdrop is generally positive. A slow but stable economy and slow easing cycle from the Fed should lead to a slow but steady rally.
The recent rally in the S&P 500, which hit its 45th record close of 2024, is more inclusive than in previous months. While banks and financials have led this broader market rise, small caps are also catching the attention of analysts.
As interest rates keep moving lower from here, it makes sense to diversify your portfolio beyond the market's biggest and brightest.
Since small-cap stocks are more domestically-focused, an improving US economy and a dovish Fed are tailwinds for small-cap stocks and ETFs.
Like those represented by the iShares Russell 2000 ETF NYSE: IWM, small-cap stocks are especially sensitive to interest rate changes. Historically, after the Federal Reserve implements rate cuts, all market cap sectors tend to rally, but small caps often outperform their larger-cap peers.
The Fed is about to cut its benchmark policy rate for the first time in more than four years.
Investors may be shaken up by the recent volatility in the stock market, and now more than ever, it is important to stick to fundamentals and attempt to understand how and where money will begin to shift in the next quarter or two. Ideally, investors can get on these trends before they take on momentum during the whole market shift, where a few asset classes come to mind.
Chipmaker Nvidia has been the best-performing stock in the S&P 500 since January 2023. The Russell 2000 tracks small-cap companies that account for 5% of U.S. stocks by market value.