The chances of former President Donald Trump winning the 2024 election are increasing, and more stocks are joining the market rebound, which is not a coincidence.

Currently, political data website SilverBulletin shows that, according to various polls, Trump's chance of winning is 42.5% while Biden's is 40.2%. These probabilities do not include many polls conducted after Trump's unsuccessful assassination attempt, so his lead over Biden may further expand. The market has not ignored Trump's rising odds. Various 'Trump trades' are being played out, from the decline in renewable energy stocks (which may lose subsidies) to the rise in bank stocks (which may face less regulatory oversight).

But the scope of the 'Trump trade' is broader than this. In fact, it seems to have spread down to all levels of market capitalization, with small-cap stocks getting a boost relative to large-cap stocks. In the past five trading days,$Invesco (IVZ.US)$S&P$CSI 500 Equal Weight Index (000982.SH)$exchange-traded funds (Invesco S&P 500 Equal Weight)$S&P 500 Index (.SPX.US)$up 4.9%, a 3.2 percentage point increase over the 1.7% gain in SPDR S&P 500 ETF, the largest five-day gain since June 2022. Societe Generale strategist Manish Kabra believes that this could eventually lead to a stock market rally. He wrote: "The U.S. election will trigger frequent cyclical trades, as potential policies under Trump 2.0 are bullish for breadth trading. We now believe that improving breadth should be the development direction."

As investors move capital down in size, this effect becomes more pronounced. In the past five trading days, the Russell 2000 small-cap index rose 11.5%, 9.9 percentage points higher than the S&P 500 index.

Consistent with this, the$Russell 2000 Index (.RUT.US)$$500 equal weight index has risen 10% since its low in early July. The index has broken through 2238 points, a multi-year high. Of course, this is not just Trump's trading. The market now expects the Fed to cut interest rates in September. In addition, according to Lori Calvasina, capital market strategist at Royal Bank of Canada, the Russell 2000's earnings and revenue growth forecasts are catching up to the S&P 500, and Wall Street analysts are also raising earnings projections.

She explained: "As we reviewed some of the earnings-related statistics we tracked last week, some of the data indicates that some of the new support for the rotation back to small-cap stocks."

According to Julian Emanuel, a strategist at Evercore ISI, small-cap stocks that have seen a 2024 earnings increase but have also been heavily shorted since the beginning of this year may outperform large-cap stocks. This is because even a little bit of good news can cause those who bet against the stock to cover their short position, causing a short squeeze. Listed stocks include construction partners ($Construction Partners), Sterling Infrastructure ($STRL.US), ServisFirst Bancshares ($SFBS.US), coal miner Alpha Metallurgical ($AMR.US), and chemical manufacturer Cabot ($CBT.US).$Construction Partners (ROAD.US)$, a highway construction company,$Sterling Infrastructure (STRL.US)$,$Servisfirst Bancshares (SFBS.US)$, a coal mining company,$Alpha Metallurgical (AMR.US)$, and a chemical manufacturer,$Cabot (CBT.US)$Since 2022, the bearish degree of these five companies has been between the 73rd and 100th percentiles, and since the beginning of this year, the profit expectation for 2024 has increased by 3% to 15%.

$Sylvamo (SLVM.US)$It looks particularly interesting. This papermaking enterprise with a market cap of 2.9 billion dollars (its brands include Hamerhill) has been selected for this list, with its short interest in the 68th percentile, and its profit forecast has risen 35% since the beginning of the year. Although the volume of paper sales in the first quarter has declined (with sales of 0.905 billion dollars), the company has still raised prices, even in the highly competitive market for commodity products.

Analysts expect Sylvamo to continue strict cost control. Sales and administrative expenses next year are expected to decrease year-on-year. The company is limiting investments, so even if next year's sales are expected to remain around 3.8 billion dollars, profits can still grow by about 7% to reach 7.41 dollars.

If the company can prove that it is achieving these goals as planned, then these results will boost the company's stock price regardless of whether there is a Trump trade or not.

Editor/ping