Small-cap companies are usually the most vulnerable to volatility, with their stock prices and earnings getting hit particularly hard and early in economic downturns, much like what occurred in 2022. Yet they also tend to lead the way on both fronts during recoveries.
As trade tensions escalate, investors are flocking to stocks of smaller US companies, which rely less on foreign sales than their large-cap peers. But in some industries, tariffs could affect smaller companies in unexpected ways.
Though the “Trump bump” helped, the year-old winning streak in smaller stocks owes far more to the spirited US economy. This rally has firepower, but we’d be choosy in riding the next leg higher.
Some of Donald Trump’s plans for the US economy may provide a big boost for small stocks. We think there are five compelling reasons for investors to take a closer look at this segment of the market.