As of the US stock market closing on October 16, measuring the performance of small-cap stocks. $Russell 2000 Index (.RUT.US)$ has achieved four consecutive increases, closed up 1.64% yesterday at 2286.68 points, reaching a high of 2289.49 points intraday, approaching the intraday high of 2300 points on July 31.
Wall Street is optimistic about the future prospects of small-cap stocks, mainly due to two major bullish factors:
1. Banks' performance is outstanding;
2. The 'Trump trade' is making a comeback.
In particular, American financial services company Cantor Fitzgerald believes that the likelihood of Republican presidential candidate Trump winning the November US presidential election is higher than market expectations, and Trump's return to the White House will benefit small-cap stocks.
Banks' performance is outstanding, bullish for the financial component stocks of the e-mini Russell 2000 index.
Due to the financial sector accounting for close to 20% of the Russell 2000 Index, the performance of small bank stocks has a significant impact on the Russell 2000 Index. The recent rise in small bank stock prices is benefiting from the performance of large bank stocks, with some of the large bank stocks' performance as follows:
$JPMorgan (JPM.US)$ Third-quarter revenue was $43.32 billion, higher than the expected $41.9 billion; net income was $12.9 billion, down 2% year-on-year but still higher than expected; net interest income was $23.5 billion, up 3% year-on-year; investment banking revenue was $2.27 billion, up 31% year-on-year, ranking first in global investment banking revenue.
$Goldman Sachs (GS.US)$ Third-quarter net revenue was $12.7 billion, up 7% year-on-year, better than the expected $11.77 billion; profit was $3.987 billion, soaring 45% year-on-year, benefiting from a surge in investment banking performance and unexpected support from stock trading income; net interest income was $2.62 billion, also exceeding the estimated $1.84 billion; fixed income, forex, and commodities business revenue were $2.96 billion, hitting a quarterly historical high; earnings per share were $8.40, skyrocketing 54% year-on-year, higher than the expected $6.89.
$Wells Fargo & Co (WFC.US)$ Third-quarter revenue was $20.4 billion, down 2.4% year-on-year; investment banking business expenses increased by 37% to $0.672 billion, helping boost non-interest income, which grew 12% to $8.7 billion in the same period; adjusted earnings per share were $1.42, higher than the market's general expectation of $1.28.
$Bank of America (BAC.US)$ Q3 revenue was $25.49 billion, a slight increase of less than 1% year-on-year, but exceeded the market's expected $25.3 billion; net income decreased by 12% from the same period last year to $6.9 billion; net interest income was nearly $14 billion, slightly higher than analyst expectations; fixed income, forex, and commodity business revenue increased by 12% year-on-year. Bank of America expects the company's net interest income to continue growing.
The performance of large bank stocks has driven up the prices of small bank stocks. $Banks - Regional (LIST2456.US)$ The sector rose more than 1% yesterday, hitting a new phase high, which is a substantial bullish sign for the Russell 2000 index.
"Trump trade" is making a comeback, boosting small-cap stocks.
Although the latest polling numbers from US polling agencies show a close race between the Republican presidential candidate, Trump, and the Democratic candidate, Harris, the gambling market - more directly affecting the interests of the players - is noticeably leaning towards Trump.
According to the average of betting markets provided by RealClearPolitics, the odds of the Republican presidential nominee, Trump, winning the presidential seat this year are steadily increasing. As shown in the graph below, as of October 16 local time, Trump's chances of winning are already at 57.6%, far ahead of Harris, his Democratic rival, at 41.3%.
From the performance of the US stock market, it is evident that the market is once again betting on the "Trump trade." $Trump Media & Technology (DJT.US)$ For example, taking the stock price as an example, since hitting a low of $11.75 on September 24, as of the close on October 16, the stock price has risen by more than 140%.
American financial services company Cantor Fitzgerald is bullish on the Russell 2000 index because it believes that the likelihood of Republican presidential candidate Trump winning the November U.S. presidential election is higher than market expectations, and Trump's return to the White House will benefit small-cap stocks.
Cantor Fitzgerald points out that small cap stocks usually perform well as the election approaches, and with the gradual increase in support for Trump in the polls, the market is also eagerly anticipating it. The company's chief strategist Eric Johnston stated that the e-mini russell 2000 index has always been a "major laggard," but now is a good time to "buy the dip". He mentioned that based on historical data, the e-mini russell 2000 index shows significant fluctuations around the time of the election, with 4 out of the past 11 election years having gains exceeding 6.5%, and even soaring by 12% or more before the year-end.
Of course, Eric Johnston also acknowledges that each election year has its own drama, but the data shows that the rebound potential of the e-mini russell 2000 index before and after the election should not be underestimated. He optimistically predicts that if Trump continues to lead, small cap stocks will experience a "spring." According to RealClearPolitics data, without swing states, Trump has 302 electoral votes, while Democratic candidate Harris has 236.
Cantor Fitzgerald further states, $iShares Russell 2000 ETF (IWM.US)$ will become part of a more diversified trade, with funds leaving large-cap / long-term growth stocks and entering stocks with various characteristics. The company considers inflation-leveraged assets such as Bitcoin and gold as beneficiaries of a Trump victory.
How to bet on small cap stocks through ETFs?
As investing in ETFs can eliminate the hassle of stock selection and make it easier to achieve returns at the index average level, investors can bet on the upside potential of small cap stocks by investing in ETFs.
Among them, the ETFs tracking the Russell 2000 Index include:
$iShares Russell 2000 ETF (IWM.US)$
Leveraged and inverse ETFs include:
$Proshares Trust Pshs Ultruss2000 (UWM.US)$
$Short Russell 2000 Proshares (RWM.US)$
$Proshares Trust Pshs Ulshrus2000 (Post Rev Split) (TWM.US)$
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Editor/Jeffy
