Manufacturing Comeback? Strategist Expects Tariffs To Help Small-Cap Stocks But Weigh On Consumers

Expect a manufacturing revival and a small-cap resurgence in 2025.

That’s according to Scott Helfstein, head of investment strategy at Global X ETF. After a grueling 23 months of contraction, “modest protectionist policy might help jump-start production,” he says.

Manufacturing: From Doldrums To Dynamo

Despite its diminished role compared to services, manufacturing still packs a $7 trillion punch—roughly 25% of GDP. Global X sees tariff policies and supply chain recalibrations as potential sparks for growth.

Here's the kicker: historical trends show even a 1% bump in tariffs can lead to a 0.2% boost in new orders and longer work hours. Expanding business services will offset higher prices weighing on consumers, Helfstein predicts.

The Industrial Select Sector SPDR Fund XLI provides investors with exposure to some of the top names in the industrial and manufacturing space.

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Small Caps: Ready To Run

Should small-cap companies return to prior spending levels, that could amount to $140 billion and a 4% lift to nonresidential private investment, Helfstein adds.

Deregulation and improved business conditions could reignite their capital expenditures, he explains. So while these companies may not dominate headlines like their mega-cap peers, their ability to drive localized growth and market expansion is hard to ignore.

Popular ETFs such as the iShares Core S&P Small-Cap ETF IJR, the iShares Russell 2000 ETF IWM and the Vanguard Small Cap ETF VB provide exposure to small-cap stocks in the U.S.

Valuations: Lofty, But Justified?

With the S&P 500's forward price-to-earnings ratio sitting at a lofty 24x, skepticism is natural. But Global X argues this could be part of a lasting shift, fueled by record-high profit margins and companies doubling down on tech-driven efficiencies.

And here's the standout stat: 73% of the S&P 500 is trading above its 200-day moving average. That’s a sign that market breadth is improving. Pair that with a manufacturing rebound and small-cap revival, and the path to broader participation looks clearer.

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