Investing.com -- Jefferies analysts predict that the return of Donald Trump to the presidency will provide tailwinds for small-cap stocks, driven largely by deregulation and corporate tax cuts.
According to a note from the firm on Wednesday, the economic policies expected under "Trump 2.0" mirror those from his first term, which saw small-caps benefiting from reduced regulatory burdens and favorable tax policies.
"Deregulation should favor small-caps," Jefferies states, emphasizing that these companies stand to gain more from corporate tax rate cuts than their large-cap counterparts.
The analysts believe small-cap stocks, particularly in sectors like biotech, are well-positioned to capitalize on the expected policy environment.
The note also highlights the broader market dynamics under Trump’s leadership, where growth stocks outperformed early in his first term.
"Trump 1.0 was a tale of two halves, with Growth doing well in the early stages," the analysts recall, suggesting a similar pattern could unfold with Trump’s re-election.
Jefferies is bullish on the small-cap sector, projecting it will thrive amid a supportive backdrop of tax cuts and deregulation.
They see small-caps as a key beneficiary of the anticipated policy changes, with these stocks set to outperform due to their higher sensitivity to domestic economic conditions and regulatory shifts.
Jefferies' base case for the S&P 500 by year-end 2025 is a fair value of 6000, with a potential bull case reaching as high as 6800. The analysts maintain a preference for growth-oriented sectors such as infotech, communication services, and discretionary, while cautioning against value sectors like property, materials, and energy, which may face headwinds due to lower oil prices and tariff-induced inflation.