{"id":12375,"date":"2024-07-18T20:05:04","date_gmt":"2024-07-18T20:05:04","guid":{"rendered":"https:\/\/economicherald.net\/?p=12375"},"modified":"2024-07-18T20:05:04","modified_gmt":"2024-07-18T20:05:04","slug":"here-are-the-sectors-poised-to-gain-from-septembers-potential-fed-rate-cuts-and-the-trump-trade","status":"publish","type":"post","link":"https:\/\/economicherald.net\/?p=12375","title":{"rendered":"Here are the sectors poised to gain from September\u2019s potential Fed rate cuts and the \u201cTrump Trade\u201d"},"content":{"rendered":"

US small-cap stocks are outshining large caps
\nInvestors are favouring small caps amid expectations of an imminent Fed rate cut
\nThe \u201cTrump Trade\u201d is also gaining traction<\/p>\n

\u00a0<\/p>\n

US small-cap stocks have quietly seized the spotlight in recent days, taking over from the mega-cap tech giants.<\/p>\n

Small caps now lead the charge in the recent bullish market, fuelled by optimism that the Fed\u2019s interest rate cuts, now expected in September, will broaden the economic recovery, playing squarely into their favour.<\/p>\n

Over the past week, the small-cap Russell 2000 index has outperformed the Nasdaq 100 by approximately 12% \u2013 a feat not seen since 2011 \u2013 beating the returns of the S&P 500 by over 3x.<\/p>\n

Investors are starting to shift their focus to overlooked sectors of the market, buoyed by recent easing inflation figures that suggest imminent interest rate cuts by the Fed.<\/p>\n

According to the latest CME FedWatch data, traders are now fully confident, with a 100% probability, that the Fed will begin cutting rates in September.<\/p>\n

Small-cap stocks, known for their responsiveness to sentiment, stand to gain disproportionately from these anticipated cuts.<\/p>\n

\u201cRotation is the name of the game,\u201d Andrew Brenner at NatAlliance Securities told Bloomberg<\/em>. \u201cThis is consistent with the increased perception of cutting rates.\u201d<\/p>\n

\u00a0<\/p>\n

Why small caps are sensitive to interest rates<\/h2>\n

Small-cap stocks are particularly sensitive to interest rates because they often rely on external financing to fuel their growth.<\/p>\n

When interest rates are high, the cost of borrowing increases, making it more expensive for these companies to finance new projects and growth initiatives.<\/p>\n

And when interest rates decline, these small caps benefit from lower borrowing costs, pushing up their valuations.<\/p>\n

Another reason small caps are sensitive to interest rates is that growth stocks are valued based on their future earnings potential.<\/p>\n

Higher interest rates increase the discount rate used in valuation models, which reduces the present value of those future earnings, and in turn, the share price.<\/p>\n

On the other hand, when interest rates decline, the discount rate decreases, increasing the present value of their future earnings and hence the share price.<\/p>\n

The Fed Reserve\u2019s decisions on interest rates therefore can have a disproportionate impact on small-cap companies compared to larger stocks.<\/p>\n

For small caps to rally strongly, there needs to be a clear confirmation that the anticipated Fed Reserve rate cuts are indeed underway, which we basically have right now.<\/p>\n

\u00a0<\/p>\n

The \u201cTrump trade\u201d<\/h2>\n

Along with the potential rate cuts, the \u201cTrump trade\u201d is gaining momentum, driven by expectations of Trump\u2019s election win after Saturday\u2019s unsuccessful assassination attempt.<\/p>\n

In a research note released on Monday morning, Dubai-based financial advisory firm deVere Group pointed out three market sectors poised to benefit from a Trump victory: energy, manufacturing, and banking stocks.<\/p>\n

\u00a0<\/p>\n

Energy<\/strong><\/p>\n

Nigel Green, CEO and founder of\u00a0deVere, says Trump\u2019s administration has historically prioritised energy independence and economic growth over environmental regulations.<\/p>\n

\u201cHis past actions, such as rolling back Obama-era climate policies and exiting the Paris Agreement, reflect a preference for less stringent environmental oversight,\u201d Green said.<\/p>\n

\u201cShould Trump win the presidency again, a similar approach is expected, which would benefit the energy sector, particularly fossil fuels.\u201d<\/p>\n

\u00a0<\/p>\n

Manufacturing<\/strong><\/p>\n

Green believes Trump\u2019s flagship \u2018America First\u2019 policy will push domestic manufacturing and reduce the US\u2019 dependence on foreign imports.<\/p>\n

\u201cA return to this policy is likely to include tariffs on foreign goods and incentives for American companies to bring manufacturing back to the US,\u201d says Green.<\/p>\n

\u00a0<\/p>\n

Banking stocks<\/strong><\/p>\n

Green added that Trump\u2019s administration has historically favoured deregulation, aiming to reduce the regulatory burden on financial institutions.<\/p>\n

\u201cWith less stringent regulations, banks and financial institutions can expect reduced compliance costs and increased profit margins,\u201d Green said.<\/p>\n

\u201cDeregulation could also facilitate increased lending activities, boosting the revenues of financial services companies.\u201d<\/p>\n

\u00a0<\/p>\n

Gold, crypto could also benefit<\/h2>\n

Trump\u2019s policies may also be supportive of the gold market.<\/p>\n

Traders have noted that the combined \u2018rate cut trade\u2019 and \u2018Trump trade\u2019 have propelled gold prices to new highs this week, reinforcing its status as a safe haven.<\/p>\n

Also, Trump\u2019s choice of Senator JD Vance as his running mate for the 2024 presidential election is seen as a \u201cmasterstroke\u201d for the crypto market, given Vance\u2019s strong support for cryptocurrency.<\/p>\n

\u201cVance, an outspoken supporter of Bitcoin and other digital currencies, represents a significant and strategic move in the evolving political landscape where crypto has become a major issue,\u201d said Green.<\/p>\n

\u201cThis decision is not only smart but also a potentially transformative masterstroke.\u201d<\/p>\n

The post Here are the sectors poised to gain from September\u2019s potential Fed rate cuts and the \u201cTrump Trade\u201d<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"

US small-cap stocks are outshining large caps Investors are favouring small caps amid expectations of an imminent Fed rate cut The \u201cTrump Trade\u201d is also [more…]<\/a><\/p>\n","protected":false},"author":0,"featured_media":12376,"comment_status":"","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-12375","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance"],"yoast_head":"\nHere are the sectors poised to gain from September\u2019s potential Fed rate cuts and the \u201cTrump Trade\u201d - Economic Herald<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/economicherald.net\/?p=12375\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Here are the sectors poised to gain from September\u2019s potential Fed rate cuts and the \u201cTrump Trade\u201d - 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