Small US companies win big in post-election stocks rally

The Wall Street rally seen since the US presidential election has lifted most stocks, but the biggest winners have been small and midsized companies heavily tied to domestic growth.

The Russell 2000, a closely watched index of small and midsized US companies, has risen nearly 12 percent since November 7, more than three times the gain of the broad S&P 500 stock index during that period.

“The election lit a fire under small and mid-cap stocks,” said Michael James, managing director of equity trading at Wedbush Securities.

“Most of them are domestic companies and it is expected with a Trump presidency that domestic companies will outperform those with domestic and international operations.”

The rally in smaller stocks represents a big shift from the sentiment on Wall Street in the year or so prior to the election, when sluggish growth in the US pressured these stocks.

Tom Cahill, portfolio manager at Ventura Wealth Management, said, “They are rallying because of the idea that they are more leveraged to the US economy and they have less exposure to the stronger dollar because of their earnings here in the US.”

A strong dollar can hit multinational companies by making exports more expensive and forcing them to transpose earnings back into the US currency at a disadvantageous rate. The dollar is up about 3.23 percent compared with other major currencies since the election. Smaller companies that only operate in the US don’t have these issues.

“Investors have learned some lessons from the election,” said Gregori Volokhine, president of Meeschaert Capital Markets. “One of them is to invest in companies less exposed to international trade.”

The Russell 2000 includes companies from across the economy ranging the egg producer CalMaine Foods, to the crafts website Etsy, to Callon Petroleum, a smaller oil and gas company.

The index comprises only about eight percent of the US stock market and is known to outperform when markets are in rally mode. (AFP)