Two weeks after the election on Nov. 8, markets continue to rally in support of a Trump victory.
As of Nov. 22, the Dow, the S&P 500, and the Nasdaq have all hit lifetime highs.
While most investors focus on the "big guys" in infrastructure, healthcare, and financials, it's vital not to overlook the "little guys" in the markets - especially small, domestic companies who predominantly trade in U.S. currency. Smaller companies have more room to grow and are highly affected by the expansion of the economy, because the majority (or all) of their business dealings are in America.
The Russell 2000, an index that tracks small-caps stock, has extended its winning streak to 13 sessions - its longest since February 1996.
And small-cap stocks have nowhere to go but up with a Trump presidency. His policies regarding trade wars, fiscal stimuli, and corporate tax reforms will have the most impact on smaller companies because they are closely tied to the U.S. economy.
Here at Money Morning, we're calling small-cap stocks the sweet spot of the market.
Here's why...
Small Cap Stocks + Donald Trump
We expect domestic companies will thrive under a President Trump, who ran a campaign highlighting the need to put America first:
"A simple core principle, putting America first, would be at the center of each agenda item," Trump stated in a recent informational video on Nov. 21.
"I want the next generation of innovation and production to be right here, in the homeland," he said.
Trump's focus on America means high spending and production. As a result, domestic companies are ultimately going to benefit, and benefit "bigly."
Take general contracting company Tutor Perini (NYSE: TPC), for example.
The California-based contracting giant is responsible for funding many infrastructure projects, including "Big Bertha," a huge tunnel-boring project in Seattle, Wash. This tunnel will be 9,270 feet long and 115 feet deep - allowing for a major highway to be carried under downtown Seattle.
Small-cap, domestic companies like Perini have seen their stocks rally in the weeks following the election because investors are excited and confident about increased infrastructure spending in the United States. Within the past month, TPC shares have risen over 35% -- and they keep climbing.
Trending News: How Small Investors Can Take on Wall Street... and Win
Trump has also proposed renegotiating how trade is conducted in America -- a move that should positively impact small-cap stocks.
"A notification of intent to withdraw [from the TPP]" along with "negotiations on fair, bilateral trade deals" will be first up on Trump's agenda.
Larger companies are concerned about the impact of this decision. However, U.S. revenue-based companies will not be affected by a trade war, which some investors are expecting to see under the Trump administration if he withdraws the United States from the partnership.
There's an even greater reason why investors are betting big on small caps...
Money, Money, Money
While Trump and his team have yet to disclose exactly what the fiscal stimulus plan entails for the country, we can make some assumptions.
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First, he has proposed a sharp reduction in the corporate tax rate, bringing it down to 15%.
This tax cut will reward investors in small-cap stocks with 12% growth, according to Barclays Capital on Nov. 21.
"For small caps with positive earnings, a drop in the effective corporate tax rate to 15%, which is consistent with the proposal by Mr. Trump, suggests a potential boost to earnings of about 13%," predicts Venu Krishna of Barclays Capital, as reported by Newsmax.
In addition to the corporate tax cut, investors can also bet that Trump's stance on deregulation will help smaller companies prosper.
Up Next: Our "Post-Trump" Play Is Leading the Markets Now
Donald Trump has proposed that he will be "cutting massively regulations," as stated at the Shale Insight Conference in September. Fewer regulations allow smaller companies to get products to market faster and with less interruption.
"This is going to be a president who will be the biggest regulatory reformer since Ronald Reagan," said Stephen Moore, one of Mr. Trump's economic advisers on Nov 9. "There are just so many regulations that could be eased."
Small company executives are optimistic about deregulation in America.
"I think he's going to make a big difference," said Darlene S. Wallace, president of Columbus Oil Company, a small Oklahoma oil producer.
Investors could profit by getting involved with small-cap stocks, sooner rather than later...
How to Play Small-Caps Right Now
"So many little companies are sitting right at the starting line regarding some of the world's most exciting trends," Sid Riggs, Money Morning's Chief Research Analyst and small-cap investing expert, said back in December. "These are what I call 'micro-trends,' little pockets of innovation that are on the cusp of changing the world. And as small-cap investors, we get to tap into them before anyone else."
Riggs is an expert at identifying potential in the small-cap sector -- where he's discovered a single, precise trigger that can consistently forecast when a small-cap stock is on the verge of booming.
"I love small caps because they offer the potential for runaway, triple-digit profits that you can bank as the companies you've picked grow... and grow some more," Riggs told readers on Nov. 1. "The real home runs usually come from micro- and small-cap companies..."
"But, as you can imagine, this story of riches can just as easily become a nightmare," he warned.
Riggs explains how to protect your investments in small-cap companies in five quick and easy steps in "How to Insure Those One-Day Triple-Digit Gains."
Editor's Note: Sid Riggs is the investment community's best-kept secret. He has identified a never-before-seen pattern that has completely changed the way investors identify niche stocks that often slip under the radar. Sid uses this tool to pinpoint profit opportunities for his subscribers in The Delta Factor, giving them the opportunity to make enormous profits from micro- and small-cap investing.
For more market updates, follow Money Morning on Twitter @moneymorning or Facebook.
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