Why Trump's Win Has 2 Market Experts Betting On Small Caps, Financials

Famed market analyst Tom Lee, managing partner of Fundstrat, summarized trade ideas on Monday following President-Elect Donald Trump’s victory. Fellow analyst Ryan Detrick concurred with two of Lee’s ideas.

Tom Lee’s Picks: Lee appeared on CNBC Monday morning, touting cyclical and small-cap stocks.

Lee asserted that energy stocks may not do as well as expected under a second Trump term, but cyclical industrial and financial stocks may perform well.

“This is for [industrials and financials]… a great environment, including M&A, cost of money falling and deregulation,” Lee said.

The analyst noted that markets have begun pricing in future inflation, perhaps due to Trump’s plan to deport undocumented immigrants or run up fiscal spending. Lee says markets are unsure of Trump’s plans on trade, but noted that markets may shape policy to be pro-business.

Lee subsequently touted small-cap companies due to their historical underperformance and cheap valuations compared to the S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY. He also noted that small-cap earnings are faster than those of their larger counterparts. Additionally, roughly 44% of small-caps are cyclical (regional banks and industrial stocks).

Detrick Agrees: Detrick agreed with Lee’s ideas following his appearance on CNBC.

“Good to see@fundstrat sticking with the small caps and cyclical themes. We are right there with him,” Detrick posted on X on Monday.

Recent Price Action: The financial-focused Financial Select Sector SPDR Fund XLF has performed well in the green since Trump’s win, up nearly 7%. Regional banks have performed even better—the iShares US Regional Banks ETF IAT is up over 11% in that timeframe.

Meanwhile, industrials have also performed well; the Industrial Select Sector SPDR Fund XLI is up over 5%.

Small caps as a whole—reflected by the iShares Russell 2000 ETF IWM—are up over 7%.

Also Read:

• Trump Trade Sparks Biggest Financial Stock Inflows In 2 Years

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