As the US election approaches, the “time may be ripe” for small-cap stocks!

Cantor Fitzgerald, a well-known financial services company in the US, said that with the perfect combination of a series of factors before the US presidential election, small-cap stocks are expected to catch up.

US small-cap stocks have lagged behind in the recent market rebound. The Russell 2000 Index rose 2.5% last month, while the S&P 500 surged nearly 4%.

This may change, as small-cap stocks usually perform well as the presidential election approaches. Cantor Fitzgerald said recent pro-Trump polls also bode well for the industry.

The company said the Russell 2000 Index has always been a “major laggard.” Eric Johnston (Eric Johnston), the company's chief strategist, said in a Monday report that in the current bull market, “the time may be ripe to break the bottom (Russell 2000 Index).”

Johnston said that historically, the Russell 2000 small-cap index fluctuated greatly before and after the presidential election. Of the past 11 election years, 4 election years rose 6.5% or more within 13 days after the general election. This impact will be even greater towards the end of the year. In four of these years, the Russell 2000 Index rose 12% or more before the end of the year.

Johnston acknowledged that every election year has unique conditions, but data shows that before and after the election, the Russell 2000 Index is likely to “rise sharply.”

Johnston also predicts that Trump's chances of winning will increase, which will benefit small-cap stocks more. He quoted data from RealClearPolitics, which showed that without swing states, Trump won 302 electoral votes while Vice President and Democratic candidate Harris received 236.

Johnston said that this does not include Trump's record of outperforming predictions in swing states in 2016 and 2020, which means Harris needs to win bigger wins in key states than currently shown in the polls.

He acknowledged that politics can change quickly, but with no more debates scheduled, Harris's chances of changing the momentum are reduced because Trump often has the upper hand in interviews and rallies.

“Overall, there seems to be little chance of changing the current momentum in favor of Trump,” Johnston said.

Johnston said that Trump's victory will benefit US domestic companies through policies such as lowering tax rates, raising tariffs, and reducing supervision of small businesses. These factors will boost investors' confidence and encourage them to move more towards riskier, underperforming small-cap stocks.

Johnston said that even if Harris wins, these macroeconomic conditions will make small-cap stocks perform well compared to large-cap stocks because the market does not take much into account the possibility of Trump winning.

Johnston's remarks came as others warned that market uncertainty was looming ahead of the upcoming presidential election. Since polls show that approval ratings between the two sides are still close, some people predict that once the voters' voting results are confirmed, market volatility will ease somewhat.