Tom Lee, the head of research at Fundstrat, has predicted that small-cap stocks could see significant gains in the coming years under Donald Trump's second term. Lee believes that small-caps have the potential to outperform by more than 100% over the next couple of years. Back in July, Lee had also forecasted a 40% upside for small-caps through the end of this year.
The recent election win by Donald Trump has already led to a surge in stock prices as traders anticipate a new economic agenda, a looser regulatory environment, and lower taxes. Small-cap stocks, as represented by the Russell 2000 index, have already seen an 18% increase this year, trading at around 10 times forward median earnings. This valuation is lower than the S&P 500, which is trading at around 17 times forward earnings.
In addition to small-cap stocks, Lee also sees potential gains in other assets that are part of the "Trump Trade," a group of investments expected to benefit from the president-elect's policies. Lee predicts that Bitcoin could surpass $100,000 by the end of the year and that the S&P 500 could rally another 5%-10% through year-end.
Despite the optimism surrounding Trump's economic agenda, there are doubts about certain aspects that could lead to inflation and higher interest rates. A survey conducted by the Financial Times and the University of Chicago found that 70% of economists believe Trump's policies are more inflationary than those of his opponent. This uncertainty may impact the future performance of small-cap stocks and other assets tied to the Trump Trade. Ultimately, investors will need to closely monitor the economic landscape to assess the potential risks and rewards of investing in these assets.