US small-cap stocks have historically performed well in the months following US presidential elections, regardless of the balance of power (Display). If history repeats itself, this trend could be especially pronounced in 2025, given the potential for lower US corporate tax rates and domestic-friendly policies. And these policies stand a better chance of passing with unified control of the White House and Congress.
The debt structure of US small-caps may also be an advantage if rates decline. According to Goldman Sachs Research, around one-third of Russell 2000 companies are financed by floating-rate debt, compared with just 6% of S&P 500 constituents. So they stand to benefit from lower financing costs—without the added time and cost of refinancing fixed-rate debt. Tariffs increase the risk of inflation, but we still expect interest rates to edge lower in 2025.
Small-company stocks may soon have tailwinds, but investors should be prudent in sizing tactical trades. The small-cap market is vast, with some parts more volatile than others. In our view, rigorous bottom-up research is essential to uncovering high-quality names with competitive advantages and sustainable business models.
History may not repeat itself, but if the incoming administration follows through on its promises—and Congress endorses them—we believe a tactical shift toward small-cap companies could benefit multi-asset strategies.
