US Stock Market: Rebalancing Hypergrowth After Trump Wins Big
Trump winners and losers
Salve, cari subscripti!
Thank you for reading this week's edition of Closelook@Hypergrowth, dated November 06, 2024 👋. The next edition will be published on 13 November 2024.
A Closelook At This Edition
This Week's Action: The Election and the Stock Market
A New Market Leadership: Hypergrowth Reflation Trades?
Did You Know? Hypergrowth in the Russel 2000 Index
The Hypergrowth Portfolio: Rebalancing Before the Election
This Week's Stock Spotlight: Astera Labs Inc - Semiconductor-Based Connectivity for Cloud and AI Infrastructure
Knowledge Corner: The Fed, Trumponomics, and the FOMC Meeting
Upcoming Transactions: Rebalancing After the Election
Final Words: What Can Possibly Go Wrong? A lot!
(1) This Week's Action: The Election and the Stock Market
The newly elected Trump administration can impose higher tariffs (raising inflation risks) and lower taxes (ballooning the federal deficits). That could push the 10-year yield up to 4.75%-5.00%.
A Republican-controlled presidency and Congress will mean less regulation and a more dovish stance on mergers and acquisitions, which benefits financial stocks and some mega-cap names.
As advocated by Donald Trump, extreme tariffs may interrupt the path of disinflation and lead to higher interest rates and inflation.
Universal tariffs under the Trump administration might impair companies that heavily source their goods from overseas markets and increase the sourcing costs of those American companies dependent on imports.
Trump has made universal tariffs a core part of his economic agenda, suggesting a 20% tariff on all goods from all countries and a 60% rate on Chinese imports.
Trump has described universal tariffs as drawing a “ring around the country” and denied they would be inflationary.
Universal tariffs will produce a lot of revenue, which can be used to cut corporate and individual taxes, significantly boost growth, and pro-capital and investment.
Given this, the SP 500 could climb to around 7,000 next year. Nasdaq and Nasdaq 100 may pose similar gains. The R2K index may outperform all three indices by quite a margin.
(2) A New Market Leadership: Small-Cap Hypergrowth Reflation Trades?
Stocks inside the Russell 2000 Growth Index, which fall under the reflation trade category and are not negatively affected by higher rates, may provide the best return in 2025 as the market leadership may change substantially under the Trump administration.
The table below shows the largest stocks by market capitalization in the index. Sprouts Farmers Market is part of the hypergrowth portfolio.
The index has exhibited a stellar performance in the past 52 weeks - up close to 100 %.
It has outperformed the R2K index and the R2K value Index by a considerable margin.
(3) Did You Know? Hypergrowth in the Russel 2000 Index
Small-cap are potential winners under a second Trump presidency, as investors expect it would ease regulations on businesses weighing more heavily on smaller businesses. Tailwinds and catalysts for sustained outperformance for small caps entail:
Trump’s domestic-focused agenda,
deregulation policy increases small business confidence,
higher M&A/sponsor activity with weaker DOJ/FTC
extension of individual/pass-through tax cuts,
a larger fiscal package passed by Congress in 2025, removing the downside to U.S. growth.
Headwinds include higher interest rates due to the inflationary tariffs and growth agenda. This may affect small-cap stocks negatively due to increased borrowing costs.
Valuation and Market Dynamics
Valuation Discounts: Small-cap stocks in the Russell 2000 are currently trading at historically wide discounts relative to large-cap stocks. This valuation gap presents an opportunity to capitalize on potentially undervalued growth companies
Rotation from Mega-Caps: As money may be reallocated out of highly concentrated mega-cap stocks, it may flow into more attractively valued small-cap stocks.
Attractive ways to play the Trump small-cap stock trade at the ETF level entail the Russel 2000 Growth Ishares ETF, the Russel 2000 Ishares ETF, and the Small-cap ETF Vanguard.
The table below shows the fifty largest Russel 2000 companies by market capitalization.
The table below shows the fifty best-performing Russel 2000 companies year-to-date (06 November 2024).
Growth areas inside the R2K include healthcare, consumer discretionary, infotech, communication services, and industrials.
Zeta Global and Sprout Farmers Market are among the top 15 and are part of the hypergrowth portfolio.
