The administration under President Trump is anticipated to create significant momentum for two distinctly different sectors of the financial market: large banks and small cap stocks, according to financial experts.
John Davi of Astoria Portfolio Advisors suggests that deregulation, as well as an increase in IPOs and mergers and acquisitions, are set to fuel sustained growth within the financial sector. Despite the political changes, banks were already becoming appealing from an earnings perspective, Davi noted, highlighting major institutions such as Goldman Sachs, JPMorgan, Bank of America, and Morgan Stanley as key areas of interest with the new administration.
The financial performance of these banks supports Davi’s view, with companies like Goldman Sachs, JPMorgan Chase, and Morgan Stanley reaching record-high stock prices. Davi has a favorable outlook on the Invesco KBW Bank ETF, whose principal investments include these major banks, and which has seen a near 10% increase year-to-date and over 49% growth over the previous year.
In parallel, Todd Rosenbluth from VettaFi sees promising times ahead for small cap stocks during Trump 2.0. He believes these companies, being less exposed to the complexities of multinational operations, could largely bypass the risks of reshoring and tariff policies. Rosenbluth suggests investors might consider funds like the T. Rowe Price Small-Mid Cap ETF and the Neuberger Berman Small-Mid Cap ETF to benefit from this trend.
Rosenbluth further underscores the potential in the VictoryShares Small Cap Free Cash Flow ETF, which is focused on high-quality small cap companies with robust free cash flow and growth potential, particularly in the biotechnology sector. Notable holdings include Royalty Pharma, Oscar Health, and Jazz Pharmaceuticals. Over the past year, this ETF has appreciated by about 10%, even as the Russell 2000 index reported gains of approximately 17%.
The evolving political landscape under President Trump may offer favorable conditions for both large banks and small cap stocks, providing diverse investment opportunities. While big banks could benefit from reduced regulations and increased financial activities, small cap stocks might find advantage in domestic priorities and strong growth prospects.
