Small-Cap Stock Recovery After the U.S. Elections: Where is the Market Heading 2025?
Small-cap stocks have witnessed remarkable recovery since the recent U.S. elections, raising questions about the future sustainability of this momentum.
Market indicators have shown strong performance for small-cap stocks compared to their large-cap counterparts,
driven by market trends and fiscal and monetary policy shifts.
This article delves into expert analyses of this recovery and the potential for its continuation in 2025 and beyond.
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Strategists at “Capital Economics” highlighted that the recent recovery in small-cap stocks,
characterized by broad gains since the U.S. elections, may reflect significant market shifts.
They noted that all sectors except the consumer sector outperformed the S&P 600 index compared to the S&P 500.
However, they do not necessarily expect this trend to persist long term.
The report referenced a similar experience following Trump’s victory in the 2016 elections,
where small-cap stocks showed weak performance for most of 2017.
Experts attributed this to delays and reductions in fiscal stimulus plans at the time.
Based on this, they predicted that the chances of implementing another sizeable
fiscal stimulus package in 2025 might be lower than some anticipate.
The report also pointed out that the Federal Reserve’s role in
easing monetary policy could positively impact small-cap companies,
which have historically outperformed during specific easing cycles.
However, they emphasized that this is not always guaranteed,
as declining stock markets or an economic recession often drives monetary easing.
Despite the recent strong performance, the firm cautioned that this might not indicate a sustainable trend.
They noted that consistent outperformance of small caps over large caps may not occur
until the potential burst of the artificial intelligence bubble, an event they do not foresee happening next year.
Small-Cap Stock Recovery After the U.S. Elections