US Election Could Create a Small-Cap Opportunity for Multi-Asset Investors

The historical performance of US small-cap stocks post-presidential elections suggests potential for growth, especially in 2025, due to anticipated lower corporate tax rates and domestic-friendly policies. These policies are more likely to pass with unified control of the White House and Congress, enhancing the investment appeal of small-cap stocks.

US small-cap companies, with a significant portion of their debt in floating rates, could benefit from declining interest rates, unlike larger firms with predominantly fixed-rate debt. This financial structure could lead to reduced financing costs, supporting their growth prospects.

While tariffs pose inflation risks, the expectation remains for interest rates to decrease in 2025, providing further support for small-cap stocks. However, investors should exercise caution, considering the volatility within the small-cap sector, which necessitates careful selection of investments.

Rigorous bottom-up research is crucial to identify high-quality small-cap companies with competitive advantages and sustainable business models. This approach can help navigate the vast and varied small-cap market landscape.

A tactical shift towards small-cap companies could enhance multi-asset strategies if the new administration's policies are implemented as promised. This strategic move should be considered within the broader context of potential market shifts and economic conditions.