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<ul class="summary-list"><li>Small-cap stocks could be headed for big upside amid Trump's second term, Tom Lee says.</li><li>"I think small-caps could, over the next couple of years, outperform by more than 100%," he said. </li></ul>Donald Trump's presidency could drive monster gains in a particular corner of the stock market in the coming years, according to Fundstrat's head of research Tom Lee.Speaking to <a target="_blank" href="https://www.youtube.com/watch?v=-Q1W8TubiDY">CNBC</a> on Friday, the permeable stock forecaster said he foresaw huge upside for <a target="_blank" href="https://markets.businessinsider.com/news/stocks/small-caps-russell-2000-rally-outlook-sp500-selloff-fundstrat-tech-2024-7">small-cap stocks</a> in the coming years. That's thanks to Donald Trump's recent election win, which <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/trump-trade-us-presidential-election-dollar-treasuries-stocks-crypto-djt-2024-11">sent stocks soaring</a> this week as traders anticipated a fresh economic agenda, a <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/bank-stocks-donald-trump-victory-reelection-wall-street-outlook-regulation-2024-11">looser regulatory environment</a>, and lower taxes. Small-cap stocks have done well so far this year, with the <a target="_blank" class="" href="https://markets.businessinsider.com/index/russell_2000">Russell 2000</a> up 18%. Still, the index of small-caps is trading at around 10 times forward median earnings, Lee noted, reflecting a lower valuation than the S&amp;P 500, which is trading at around 17 times forward earnings."I do think there's still a lot of upside," Lee said. "So I think small-caps could, over the next couple of years, outperform by more than 100%," he added.Lee, who previously predicted the small-cap <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/small-caps-russell-2000-rally-outlook-sp500-selloff-fundstrat-tech-2024-7">Russell 2000 index could rally as much as 40%</a> before the end of the year, also said he sees big gains ahead for other assets lumped into the <a target="_blank" class="" href="https://www.businessinsider.com/the-trump-trade-stock-market-bonds-commodities-tariffs-fed-2024-7">Trump Trade,</a> a handful of investments thought to benefit under the president-elect's policies.Bitcoin, which notched a record-high this week, could climb past $100,000 by the end of the year, Lee predicted. The S&amp;P 500, meanwhile, could rally another 5%-10% through year-end, he said, pointing to the size of previous post-election rallies."Part of the reason investors are feeling so optimistic is that President Trump is entering office again, but this time with a lot more knowledge of how to build a cabinet and a team, and so in some ways this end up being more market-friendly," he added.Doubts, though, are swirling around some aspects of Trump's economic agenda, which experts have warned could <a target="_blank" class="" href="https://www.businessinsider.com/trump-tariffs-higher-inflation-fed-interest-rates-taxes-mortgage-rates-2024-11">stoke inflation and keep interest rates</a> higher for longer. Trump's policies were thought to be <a target="_blank" class="" href="https://www.ft.com/content/022bb11b-c340-4059-b9b7-30481a02174c">more inflationary</a> than Harris' by 70% of polled economists, according to a survey conducted by the Financial Times and the University of Chicago.

Trump's presidency could help small-cap stocks soar in the coming years, Fundstrat's Tom Lee says

Morgan Stanley says these 10 small-cap stocks have at least 50% upside

<ul class="summary-list"><li>The recent surge in small-cap stocks appears unsustainable, according to Capital Economics' John Higgins.</li><li>Higgins said the fact that large-cap stocks are still near record highs suggests no rotation has taken place.</li></ul>The <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/stock-market-rally-broadens-small-caps-another-win-for-bulls-2024-7">rapid and historic rally in small-cap stocks</a> over the past week is unsustainable.That's according to Capital Economics' chief market economist John Higgins, who said in a note on Wednesday that the relative outperformance of small-cap stocks compared to large-cap stocks is likely to be short-lived."A recent surge in the Russell 2000 after the US CPI report for June was published last week has prompted claims that we are entering the initial stage of a secular rotation into US small-cap stocks. We are not convinced," Higgins said.First, Higgins said the recent market action shouldn't be thought of as a rotation.A rotation implies that investors are selling large-cap stocks and using those proceeds to buy small-caps. But while large-caps have sat out the rally over the past week, they are still just a few percentage points below all-time highs."We would need to see more evidence of a sell-off in 'big tech' to be convinced that a rotation into small-cap stocks out of their larger counterparts was well and truly underway," Higgins said.Higgins made those comments while acknowledging <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/nvidia-stock-price-tighter-china-trade-restrictions-tsm-asml-nvda-2024-7">the sharp decline in mega-cap tech stocks on Wednesday,</a> sparked by comments from former President Donald Trump and the Biden administration considering restrictions on certain semiconductor companies.Much of the rally in small-cap stocks has been driven by the expectation that the Federal Reserve will soon lower interest rates.But Higgins isn't buying that argument either, noting that large-cap stocks outperformed their small-cap peers when the Fed cut interest rates in the mid-1990s, as well as when they cut interest rates in 2009 and 2019."We anticipate a bubble in the stock market continuing to inflate amid hype around AI, like one did in the second half of the 1990s around the internet. Back then, small-cap stocks generally underperformed their large-cap peers until mid-1999," Higgins said.Finally, Higgins highlighted that the biggest factor driving stock market performance is earnings, and there's no sign yet that small-cap stocks are going to overtake large-cap stocks in terms of earnings growth."It remains to be seen whether big tech firms will fail in general to continue to beat analysts' lofty expectations for their earnings," Higgins said.The first round of second-quarter earnings results for the mega-cap tech companies are set to drop next week with reports from Tesla and Alphabet.While Higgins isn't yet buying into the small-cap stock rally, Fundstrat's Tom Lee is.The strategist <a target="_blank" class="" href="https://markets.businessinsider.com/news/stocks/small-caps-russell-2000-rally-outlook-sp500-selloff-fundstrat-tech-2024-7">told clients on Tuesday that he still sees a 40% rally occurring</a> in small-cap stocks after they've largely sat out the broader stock market rally this year."We have small caps even more oversold and valuations — whether you look at medium P/E, which is now at 10 times 2025 earnings — even lower," Fundstrat's Tom Lee told <a target="_blank" rel=" nofollow" href="https://www.youtube.com/watch?v=VyHto5WWQ0k">CNBC</a>. "So we think that this move could be something like 10 weeks and as much as 40%. So I think it is just starting."

Why the stock market's rotation into small-caps will be short-lived

<ul class="summary-list"><li>Small stocks historically see big upward moves near presidential elections, Cantor Fitzgerald says.</li><li>Given recent polling in favor of Trump, small-caps should get an added boost, the firm says.</li></ul>Small-cap stocks are set for a catch-up amid a confluence of perfectly aligned factors ahead of the presidential election, Cantor Fitzgerald says.Small-caps have <a target="_blank" href="https://www.businessinsider.com/small-cap-rally-where-to-invest-quality-stocks-cooling-economy-2024-8">fallen behind</a> in the recent market rally, with the Russell 2000 up 2.5% in the last month as the S&amp;P 500 has soared almost 4%.That could change as small stocks typically do well close to presidential elections. Recent polling in favor of Donald Trump also bodes well for the sector, Cantor Fitzgerald says.The Russell 2000 has been a "major laggard," the firm said. Stocks in the index "could be ripe for bottom fishing" amid the current bull market, the firm's chief strategist Eric Johnston said in a Monday note.Johnston says the Russell 2000 small-cap index has historically seen big moves around presidential elections, with a 6.5% or greater rally in the 13 days after the election in four of the last 11 election years. That effect is often even greater into the end of the year, with a 12% or greater rally into year-end in four of those years.Johnston acknowledges that each election year poses unique conditions, but the data shows there is potential for "very large up moves" in The Russell 200 around elections.Johnston also forecasts increasingly higher odds of a Trump win, which would benefit small stocks even more. He cites data from RealClearPolitics, which shows a Trump win in a no-toss-up scenario, with Trump winning 302 electoral votes compared to 236 for Vice President and Democratic nominee Kamala Harris.And that's not to mention Trump's track record of outperforming predictions in swing states in both 2016 and 2020, which means Harris needs to win in key states by more than current polling shows, Johnston says.He acknowledges that politics can change quickly, but that with no more debates scheduled, it reduces the opportunity for Harris to change momentum, as Trump often has the upper hand in interviews and rallies."Overall it looks like there are very few opportunities to change the momentum that is currently in Trump's favor," Johnston says.Johnston says a Trump win would benefit domestic companies via lower tax rates, high tariffs on China, and less small business regulation, among other policies. Those factors would increase investors' confidence and encourage more rotation into riskier, underperforming small stocks.Johnston says those macroeconomic conditions set small caps up to do fine relative to large caps even if Harris wins, since the market is not pricing in much of a Trump win anyway.Johnston's comments come as others have warned of <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-election-uncertainty-rate-cuts-tom-lee-fed-2024-9?_gl=1*aj7fpk*_ga*MTY3OTgyNjg0MS4xNzIxMDE2MDM2*_ga_E21CV80ZCZ*MTcyODkyNDk4NS4yNjQuMS4xNzI4OTI1MDgyLjM1LjAuMA..">uncertainty looming over markets</a> ahead of the upcoming presidential election. With the polling still close, some have predicted a <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-volatility-presidential-election-ed-yardeni-gridlock-selloff-2024-9">bout of market volatility</a> that will subside once the outcome is determined after voters cast their ballots.

Why small stocks are 'ripe' for gains ahead of the November election, according to Cantor Fitzgerald

<ul class="summary-list"><li>Small-caps historically decline before and after the first interest rate cut, Barclays reported.</li><li>This argues against the growing narrative that the easing cycle will boost small-caps, the bank said.</li></ul>Small-caps are getting new love on Wall Street, but not much supports the expectation for the sector to surge, Barclays wrote.In fact, strategists led by Venu Krishna found that the small-cap-tracking <a target="_blank" href="https://markets.businessinsider.com/index/russell_2000">Russell 2000</a> typically declined once rate cuts started."We think this argues against the popular narrative that the start of a rate cutting cycle signals a sustainable uptrend for small caps vs. large caps," the note said.The authors compared the Russell's performance to the <a target="_blank" href="https://markets.businessinsider.com/index/s&amp;p_500?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">S&amp;P 500</a> through 13 easing cycles from 1980 to 2020. Although the note acknowledged a range of outcomes, a broad downtrend was evident in the 150 days before and after the first cut.<div type="image" title="Chart comparing RTY and SPX performance" height="1338" width="2832" msid="111869324" hostid="261" sizebytes="67842"></div>Their finding opposes many prevailing viewpoints on Wall Street, where rising bets of lower interest rates have sent investors piling into the small-cap trade. Last Thursday, the Russell rose 3.6%, even as the tech-heavy NASDAQ shed 2%.Many expect these stocks to benefit from lower borrowing costs, given their high debt exposure. The rotation into small-caps was first sparked by June's surprisingly cool inflation report, which bolstered confidence that the Federal Reserve would slash rates as soon as September.The Russell <a target="_blank" href="https://markets.businessinsider.com/news/stocks/small-caps-russell-2000-rally-outlook-sp500-selloff-fundstrat-tech-2024-7">faces 40% upside</a> by August, given how oversold its assets have been, Fundstat's Tom Lee predicted this week.But Barclays outlined why this might not be the case historically. In part, falling interest rates might help ease debt burdens, but they can also signal a cooling economy — which favors large-cap exposure."Small caps also continue to face numerous other headwinds, including forward EPS revisions that lag those of their large-cap peers, higher volatility (which is out of favor when the yield curve is exiting inversion and in election years), and heightened vulnerability to trade tensions despite a more domestic sales focus," Barclays wrote.Skeptics agree. Market veteran Ed Yardeni wrote this week that the small-caps trade has no legs, given the sector's lackluster forward earnings, revenue, and profit margins.Meanwhile, others acknowledged the rally but <a target="_blank" href="https://markets.businessinsider.com/news/stocks/small-cap-rally-rotation-stock-market-short-lived-large-caps-2024-7">questioned its staying power</a>."As the Fed embarks on a rate cutting cycle, markets tend to cheer it initially and even for a short period after the cuts begin. But if that cutting cycle occurs in concert with slowing economic data, disappointing earnings, or a quick compression in multiples, small-caps would likely lose steam quickly," SoFi's head of investment strategy Liz Young Thomas said in written commentary.She added: "Not to mention, the Fed typically cuts rates late in the economic cycle, not early in the cycle when small-caps tend to have their moment in the spotlight."

Don't bet on the stock-market rotation as small-caps historically suffer when rates come down, Barclays says

<ul class="summary-list"><li>The Dow Jones climbed over 700 basis points on Tuesday.</li><li>Small-caps saw a steeper increase as rate-cut bets helped drive a rotation into other parts of the market. </li></ul>US equities soared on Tuesday as the bull market swept into broader corners of the market.While the Dow Jones jumped 1.8% to a new record high, the Russell 2000, an index focused on small-caps, notched an even steeper gain of 3.5%.The rotation into less loved corners of the equity market highlights a rising appetite for stocks that investors think are set to outperform once the Federal Reseve starts cutting interest rates. Small-caps are often more debt-burdened companies, and the sector has struggled amid higher interest rates.But with the market growing more confident in the possibility of a rate cut in September, risk-on appetite is surging.The Russell 2000's performance isn't a one-off feat either: the four past sessions have witnessed the Russell surpass the Nasdaq by close to 11 percentage points. That hasn't happened in 13 years.Wall Street has grown convinced that the Fed will ease rates this fall, after June delivered a softer-than-expected inflation report.On Tuesday, June's retail sales came in strong, lowering concern of an imminent consumer pullback. Excluding autos, sales rose 0.4% against estimates of a 0.1% increase"The economy is in pretty good shape," Comerica Bank chief economist Bill Adams said.He added: There are signs of softness around the edges where low and moderate income consumers are pulling back, like the weakness of food service and drinking place spending in the first half of this year. But openhanded spending by affluent consumers is keeping the economy as a whole moving forward."At the same time, the second quarter's earnings season is helping maintain market momentum. On Tuesday, estimate-beating reports helped Bank of America and Caterpillar, the industrial equipment firm, gain upside.Here's where US indexes stood at he 4:00 p.m. closing bell on Tuesday:<ul><li><a target="_blank" href="https://markets.businessinsider.com/index/s&amp;p_500?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">S&amp;P 500</a>: 5,667.20, up 0.64% </li><li><a target="_blank" href="https://markets.businessinsider.com/index/dow_jones?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Dow Jones Industrial Average</a>: 40,954.48, up 1.85% (+742.76 points)</li><li><a target="_blank" href="https://markets.businessinsider.com/index/nasdaq_composite?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Nasdaq composite</a>: 18,509.34, up 0.2%</li></ul>Here's what else happened today:<ul><li><a target="_blank" href="https://markets.businessinsider.com/news/stocks/small-caps-russell-2000-rally-outlook-sp500-selloff-fundstrat-tech-2024-7">This small-cap index will rally 40% as S&amp;P 500 starts to lag</a>, Fundstrat's Tom Lee said.</li><li><a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-rally-broadens-small-caps-another-win-for-bulls-2024-7">One of the stock market's biggest worries is vanishing</a> as the rally broadens out.</li><li><a target="_blank" href="https://markets.businessinsider.com/news/commodities/spot-ether-etf-bitcoin-ethereum-token-cryptocurrency-crypto-bull-run-2024-7">The upcoming launch of spot ether ETFs will boost the token above bitcoin</a>, research firm says.</li><li><a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-bond-warning-signal-flashes-1999-first-time-2024-7">A bond market recession signal is flashing red for the first time since 1999.</a></li><li><a target="_blank" href="https://www.businessinsider.com/housing-costs-mortgage-rates-prices-insurance-swing-states-election-november-2024-7">Swing state housing costs have doubled since the last election</a>, Redfin reports.</li></ul>In commodities, bonds, and crypto:<ul><li><a target="_blank" href="https://markets.businessinsider.com/commodities/oil-price?type=wti&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">West Texas Intermediate</a> crude oil grew 0.42% to $80.83 a barrel. <a target="_blank" href="https://markets.businessinsider.com/commodities/oil-price?utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Brent crude</a>, the international benchmark, dropped 1.23% to $83.83 a barrel.</li><li><a target="_blank" href="https://markets.businessinsider.com/commodities/gold-price?utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Gold</a> climbed 1.82% to $2,466.5 per ounce.</li><li>The 10-year Treasury yield fell six basis points to 4.164%.</li><li><a target="_blank" href="https://markets.businessinsider.com/currencies/btc-usd?utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Bitcoin</a> stayed essentially flat at $64,799.</li></ul>

Stock market today: Dow surges 742 points and small caps rally as investors bet big on Fed rate cuts

<ul class="summary-list"><li>Tech stocks tumbled Thursday, weighing on the broader market after the June CPI report. </li><li>Inflation was cooler than expected last month, clocking in at 3% year-over-year. </li></ul>US stocks slid on Thursday, weighed down by tech names like Nvidia and Microsoft as the Nasdaq tumbled 2%.The S&amp;P 500 closed below 5,600 after ending Wednesday's session above that threshold for the first time.Meanwhile, the small-cap-focused Russell 2000 jumped 3.6% during the session. Smaller companies, which are often more highly leveraged and therefore more sensitive to interest rates, have struggled as the Federal Reserve has kept them higher to battle inflation.With cooler June CPI opening the door for potentially steeper rate cuts this year, investors are betting that laggards among small-caps could be the next to rally. The Russell 2000 is up about 5% in 2024, compared to 18% for the S&amp;P 500."[Rate cuts] support our expectation for the stock market rally to continue and broaden out from the Magnificent-7," market veteran Ed Yardeni said in a note. "[Small and mid-cap stocks] have been weighed down by high interest rates and have remained relatively cheap when the Fed was tightening monetary policy."Here's where US indexes stood at the 4:00 p.m. closing bell on Wednesday:<ul><li><a target="_blank" href="https://markets.businessinsider.com/index/s&amp;p_500?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">S&amp;P 500</a>: 5,584.54, down 0.9%</li><li><a target="_blank" href="https://markets.businessinsider.com/index/dow_jones?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Dow Jones Industrial Average</a>: 39,753.75, up 0.1% (32 points)</li><li><a target="_blank" href="https://markets.businessinsider.com/index/nasdaq_composite?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Nasdaq composite</a>: 18,283.41, down 2%</li></ul>Inflation clocked in at 3% last month, cooler than expected and marking the second month of encouraging data after a tough first quarter.Commentators were quick to call a September rate cut as all but assured, and the odds of a cut at this month's policy meeting crept up slightly as well."A September rate cut should be a done deal at this point. In the second quarter, the run-rate for headline inflation in the US was only 1.1%, with core inflation at 2.1%, making it increasingly evident that the first quarter upside surprises were anomalous," Lazard Chief Market Strategist Ron Temple said."Given the increasing evidence of slowing economic growth, it's time for the Fed to refocus on the dual mandate and ease monetary policy."Here's what else happened today:<ul><li><a target="_blank" href="https://markets.businessinsider.com/news/stocks/ai-bubble-pop-signal-stock-market-investing-outlook-goldman-sachs-2024-7">Goldman Sachs says to watch for this signal</a> to know when AI's stock market dominance will fade.</li><li><a target="_blank" href="https://markets.businessinsider.com/news/stocks/apple-stock-price-outlook-ai-iphone16-release-upgrade-cycle-bofa-2024-7">Wall Street is growing bullish on Apple stock again</a> — and it's all because of the iPhone 16.</li><li><a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-split-boom-hits-microstrategy-chipotle-broadcom-nvidia-whos-next-2024-7">Stock splits can be like rocket fuel for share prices</a>. Here's who could be next after Microstrategy's latest 10-for-1 move.</li></ul>In commodities, bonds, and crypto:<ul><li>Oil futures rose. <a target="_blank" href="https://markets.businessinsider.com/commodities/oil-price?utm_medium=ingest&amp;utm_source=markets">West Texas Intermediate</a> crude was up 1% to $82.98 a barrel. <a target="_blank" href="https://markets.businessinsider.com/commodities/oil-price?utm_medium=ingest&amp;utm_source=markets">Brent crude</a>, the international benchmark, increased 0.7% to $85.71 a barrel.</li><li><a target="_blank" href="https://markets.businessinsider.com/commodities/gold-price?utm_medium=ingest&amp;utm_source=markets">Gold</a> rose 1.8% to $2,422 per ounce.</li><li>The 10-year Treasury yield dropped seven basis points to 4.205%.</li><li><a target="_blank" href="https://markets.businessinsider.com/currencies/btc-usd?utm_medium=ingest&amp;utm_source=markets">Bitcoin</a> was about flat at $57,515.</li></ul>

Stock market today: Tech drags indexes lower, small-caps soar after inflation data boosts rate-cut bets          

<ul class="summary-list"><li>Smaller stocks may be poised to outperform amid a low bar for earnings, Citi analysts say.</li><li>Smaller stocks may also be hedged against risks related to a Trump presidency. </li></ul>After a rally this summer, inflows to smaller stocks have dwindled in recent weeks, but the under-the-radar corner of the market may be poised to outperform in the coming months, Citi analysts said.The analysts point to a host of factors, from a low bar for earnings beats to factors related to a potential Donald Trump victory, as signs pointing to an upcoming rally for small-caps.The analysts said that smaller stocks have a lower bar to clear for earnings growth, making it easier for them to impress Wall Street when they report results. They say small and mid-cap stocks are pricing in 2%-10% growth in earnings-per-share over the next three years, while the S&amp;P 500 is expected to show 15%-22% EPS growth."While earnings surprises have been stronger up cap thus far in Q3 reporting, larger or similar percentage beats in certain Small/Mid Cap sectors/names may be rewarded more by markets given a lower bar into results," the analysts said. "The S&amp;P 500, driven by the Magnificent 7, may need stronger results and upward forward estimate revisions to justify current levels."Second, smaller stocks may be hedged from risks related to a second Donald Trump presidency. Trump has proposed sweeping tariffs of 20% on all imports and tariffs of <a target="_blank" href="https://www.businessinsider.com/donald-trump-impose-tariffs-china-if-elected-2024-2?utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets&amp;_gl=1*w1ioyc*_ga*MTY3OTgyNjg0MS4xNzIxMDE2MDM2*_ga_E21CV80ZCZ*MTczMDQ2ODgwMS4zNDcuMS4xNzMwNDY5MzgxLjQwLjAuMA..">60% or more on goods from China</a>. The analysts said small-caps have historically been hedged against tariff-related risks. They pointed to how small caps initially outperformed on his surprise victory in 2016, and again after he implemented steel tariffs during his first term. "In both cases, Small/Mid Cap round-tripped relative performance gains when economic data came in softer than expected," the analysts said.At the same time, the market doesn't seem to be expecting much strength from small caps in the case of a Trump win, meaning they have further room to run, the analysts say."Conversely, with low implicit growth expectations, Small/Mid Cap to some degree could be a Trump trade with relatively little priced in at current levels," they said.Finally, their third point noted that small caps generally are less liquid, though they noted that focusing on smaller names could be a trade-off given the opportunities. "Impressive Large Cap performance has clearly created some hesitancy to move down cap, and related, down in liquidity. To us, a move down cap in search of alpha opportunities could help manage certain risks, offering investors a trade-off for lesser liquidity relative to Large," the analysts said.

3 reasons investors should rotate into smaller stocks, according to Citi

<ul class="summary-list"><li>The postelection rally staggered on Tuesday as bond yields spiked.</li><li>Some parts of the Trump trade continued to gain, such as bitcoin and the US dollar.</li></ul>The five-day election rally sputtered on Tuesday as the market turned its attention toward incoming economic data.Some parts of the Trump trade maintained momentum, with crypto and FX traders cheering on the president-elect's policies. But while <a target="_blank" href="https://markets.businessinsider.com/currencies/btc-usd?utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">bitcoin</a> and the US dollar continued to push higher, equity indexes retreated <a target="_blank" href="https://www.bloomberg.com/news/articles/2024-11-11/stock-market-today-dow-s-p-live-updates?srnd=phx-markets">Monday's closing highs</a>.The Dow Jones Industrial Average lost nearly 350 points after hitting a record high over 44,000 in the previous session. The post-election rally in financials and small-caps also stumbled.Hurting the Trump bump on Tuesday was the surge in bond yields. The 10-year Treasury yield spiked aggressively, surging 13 basis points. The sharp rise comes a day ahead of October's consumer inflation report. Wall Street is eyeing for any upside price surprise, which could unwind interest rate cut outlooks.Economists expect a 2.5% year-over-year jump in Wednesday's CPI data, compared to a rise of 2.4% in the prior month."The inflation numbers might tick up a little this week as some areas like transportation, consumer durables, and rent have been harder to get under control. After steady progress, we might be leveling off, but the Fed has made progress toward their target," said Scott Helfstein, Global X head of investment strategy. "There is no reason to believe that one month of data will change the Fed strategy, and a 25 bp cut in December remains the base case."Still, the market indicates a 37.9% chance that the Federal Reserve will keep interest rates steady next month. Trump's policies are expected to have a potentially inflationary impact, and the market is debating whether interest rates will remain higher for longer as the Fed is again forced to confront rising prices."Inflation is not tamed," Apollo's co-president Scott Kleinman told <a target="_blank" href="https://www.bloomberg.com/news/videos/2024-11-12/apollo-s-scott-kleinman-says-inflation-is-not-tamed-video">Bloomberg TV</a>. "The Fed can say what it wants. You just have to open your eyes and look around."Here's where US indexes stood at the 4:00 p.m. closing bell on Tuesday:<ul><li><a target="_blank" href="https://markets.businessinsider.com/index/s&amp;p_500?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">S&amp;P 500</a>: 5,983.99, down 0.29% </li><li><a target="_blank" href="https://markets.businessinsider.com/index/dow_jones?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Dow Jones Industrial Average</a>: 43,910.98, down 0.86% (-382.15 points)</li><li><a target="_blank" href="https://markets.businessinsider.com/index/nasdaq_composite?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Nasdaq composite</a>: 19,281.40, down 0.09% </li></ul>Here's what else happened today:<ul><li><a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-trump-rally-economy-interest-rates-inflation-david-rosenberg-2024-11?_gl=1*1p9ha58*_ga*MTMxNDIwNDI1Ni4xNjc1Njg3OTU4*_ga_E21CV80ZCZ*MTczMTQ0MTEzMi44MjQuMS4xNzMxNDQyODAzLjYwLjAuMA..">The postelection rally is disconnected from fundamentals,</a> David Rosenberg said.</li><li><a target="_blank" href="https://markets.businessinsider.com/news/stocks/dogecoin-price-market-value-ford-crypto-boom-trump-elon-musk-2024-11?_gl=1*1r8abo1*_ga*MTMxNDIwNDI1Ni4xNjc1Njg3OTU4*_ga_E21CV80ZCZ*MTczMTQ0MTEzMi44MjQuMS4xNzMxNDQyODYzLjYwLjAuMA..">Dogecoin is worth more than Ford as Trump's win propels total crypto market cap to $3 trillion.</a></li><li><a target="_blank" href="https://markets.businessinsider.com/news/stocks/tesla-stock-elon-musk-political-influence-trump-ai-autonomous-2024-11?_gl=1*1nao6vg*_ga*MTMxNDIwNDI1Ni4xNjc1Njg3OTU4*_ga_E21CV80ZCZ*MTczMTQ0MTEzMi44MjQuMS4xNzMxNDQyOTU2LjYwLjAuMA..">Tesla stock could soar 50% amid Elon Musk's new political influence</a>, Morgan Stanley says.</li><li><a target="_blank" href="https://markets.businessinsider.com/news/stocks/hertz-stock-price-tesla-ev-fleet-q3-earnings-profit-revenue-2024-11?_gl=1*1phxwrx*_ga*MTMxNDIwNDI1Ni4xNjc1Njg3OTU4*_ga_E21CV80ZCZ*MTczMTQ0MTEzMi44MjQuMS4xNzMxNDQzMDMyLjU4LjAuMA..">Hertz's failed Tesla bet weighs down its earnings, tanking shares in the car rental company.</a></li><li><a target="_blank" href="https://www.businessinsider.com/trump-policies-economy-recession-inflation-stock-market-outlook-nouriel-roubini-2024-11">"Dr. Doom" Nouriel Roubini warns of stagflation under Trump's policies.</a></li></ul>In commodities, bonds, and crypto:<ul><li><a target="_blank" href="https://markets.businessinsider.com/commodities/oil-price?utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">West Texas Intermediate</a> crude oil inched up 0.21% to $68.18 a barrel. <a target="_blank" href="https://markets.businessinsider.com/commodities/oil-price?utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Brent crude</a>, the international benchmark, increased by 0.17% to $71.95 a barrel.</li><li><a target="_blank" href="https://markets.businessinsider.com/commodities/gold-price?utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Gold</a> was shed 0.5% hitting $2,604.7 an ounce.</li><li>The 10-year Treasury yield spiked 13 basis points to 4.441%</li></ul><a target="_blank" href="https://markets.businessinsider.com/currencies/btc-usd?utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">Bitcoin</a> rose 2.79% to $89,552.

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