Small-cap stocks have been one of the market’s hottest sectors since President-elect Trump won the election four weeks ago. But now there are signs of trouble in Paradise that could limit future gains. “The concern for small and mid-cap stocks right now is that despite the change in sentiment due to Trump’s influence, earnings growth remains subdued and we expect a downward revision next year,” said Andrew Krei. Grove Advisors co-chief investment officer told CNBC. “Small-cap stocks are just a trade now rather than a fundamental move,” Clay added. The Russell 2000 gained nearly 11% in November, pushing its year-to-date gain to 20.1%, but still trails the S&P 500’s 26.5% gain. Lauren Goodwin, economist and chief market strategist at New York Life Investments, is also reducing her exposure to small-cap stocks, which are typically defined as stocks with valuations between $250 million and $250 million. companies between $2 billion. Although Goodwin is more optimistic about the industry’s growth prospects and the boost from a stronger dollar, which could hurt the profits of more global companies, Goodwin remains sceptical. “We are not yet at the start of a new cycle; strong performance is unlikely,” she recently wrote in a research note. .RUT .SPX Year-to-date Mountain Russell 2000 and other areas of opportunity for the S&P 500 in 2024 Krei is instead looking to the broader market, excluding Big Tech stocks. The problem for big tech companies in the coming quarters, he said, is that they face greater risks because expectations are too high. By contrast, Clay believes that other Trump deals with more room to work include value industries such as industrials and energy. Clay said that although “the impact of Trump’s tariffs (pending) on industrial products is still unclear.” “Valuations start from a more favorable starting point and the industry has more room for error.” Clay is also more optimistic about financial stocks, another category that like small stocks has outperformed after Trump’s election. “Finance is like the antithesis of technology,” Clay said. One way investors can make these trades is through industry-based ETFs. The Financial Select Sector SPDR Fund ETF (XLF) surged 10.5% in November, bringing its 2024 gain to 38%. % in November. The Industrial Select Sector SPDR ETF (XLI) gained 7.6% in November and is now up 27.6% year to date, slightly beating the broader market by 1 percentage point. —CNBC’s Michael Bloom contributed to this report.
