The policies of the Trump administration may present significant opportunities for two contrasting market sectors – large-scale banking institutions and small-cap stocks.
John Davi, the CEO and founder of Astoria Portfolio Advisors, predicts that deregulation, combined with an increase in IPOs and mergers and acquisitions, could trigger a surge of strength in the financial sector over multiple years.
Davi noted that banks, even before the Trump administration, were becoming fundamentally appealing from an earnings standpoint. He pointed out that large-scale money centers like Goldman Sachs, JPMorgan, Bank of America, and Morgan Stanley are key areas to focus on under the new administration.
Recently, these money center banks have had a strong showing. For instance, the shares of Goldman Sachs, JPMorgan Chase, and Morgan Stanley hit record highs last Friday. These historical gains are a core reason why the Invesco KBW Bank ETF, with top holdings including JPMorgan, Goldman Sachs, and Morgan Stanley, has seen a rise of nearly 10% since January 1, and over 49% in the past year, according to data from FactSet.
Meanwhile, Todd Rosenbluth of VettaFi anticipates that small-cap stocks will thrive under the policies of the Trump administration. He suggests that these stocks could be immune to reshoring and tariff threats.
Rosenbluth explains that if the focus is on strengthening the U.S., then small-cap companies with less multinational exposure stand to benefit. He recommends the T. Rowe Price Small-Mid Cap ETF and Neuberger Berman Small-Mid Cap ETF as investment options to approach this sector.
He also favors the VictoryShares Small Cap Free Cash Flow ETF, which has a strong exposure to the biotechnology sector. According to the fund’s website, its top three holdings are Royalty Pharma, Oscar Health, and Jazz Pharmaceuticals. The ETF aims to target “quality small-cap companies, trading at a discount with favorable growth prospects.”
Rosenbluth states that the ETF has a focus on high-quality companies with strong free cash flow generation and a growth filter, ensuring only the top small caps are included. Over the past year, the VictoryShares Small Cap Free Cash ETF has risen almost 10%, while the Russell 2000, which tracks the group, has risen about 17%.
Please note that this information is intended for general knowledge and is not financial advice. Always do your own research or consult with a financial advisor before making any investment decisions.
