South Korea Assures U.S. on Trade Deal Commitments Amid Tariff Concerns 
RBI Holds Repo Rate at 5.25% as India’s Growth Outlook Strengthens After U.S. Trade Deal 
South Korea’s Weak Won Struggles as Retail Investors Pour Money Into U.S. Stocks 
Oil Prices Slide on US-Iran Talks, Dollar Strength and Profit-Taking Pressure 
Bank of Japan Signals Readiness for Near-Term Rate Hike as Inflation Nears Target 
Asian Stocks Slip as Tech Rout Deepens, Japan Steadies Ahead of Election 
Gold Prices Slide Below $5,000 as Strong Dollar and Central Bank Outlook Weigh on Metals 
Oil Prices Slip as U.S.–Iran Talks Ease Supply Disruption Fears 
Vietnam’s Trade Surplus With US Jumps as Exports Surge and China Imports Hit Record 
U.S. Stock Futures Slide as Tech Rout Deepens on Amazon Capex Shock 
Trump Signs Executive Order Threatening 25% Tariffs on Countries Trading With Iran 
U.S. Stock Futures Edge Higher as Tech Rout Deepens on AI Concerns and Earnings 
Gold and Silver Prices Slide as Dollar Strength and Easing Tensions Weigh on Metals 
Dollar Near Two-Week High as Stock Rout, AI Concerns and Global Events Drive Market Volatility 
U.S.-India Trade Framework Signals Major Shift in Tariffs, Energy, and Supply Chains 
Dow Hits 50,000 as U.S. Stocks Stage Strong Rebound Amid AI Volatility 
Silver Prices Plunge in Asian Trade as Dollar Strength Triggers Fresh Precious Metals Sell-Off 
Wells Fargo analysts believe current market conditions offer a compelling opportunity for short-term gains in small-cap stocks, given the close U.S. presidential race and certain economic catalysts. The investment bank suggests that the "50/50" nature of the race, particularly with the potential for a Trump victory, could result in favorable returns for small caps.
"Small caps have a positive expected near-term relative return as the presidential race is essentially a coin toss (per RCP) with five weeks to go," the analysts wrote. "Expected small-cap returns are favorably skewed, with significant near-term outperformance in the event of a Trump win and limited underperformance with a Harris victory."
Potential Outperformance with Trump Win
If Trump is re-elected, Wells Fargo anticipates a 5-10% outperformance in small caps within one to three months. This prediction is based on market behavior following the 2016 election and the reaction to an assassination attempt on Trump in July 2024. In 2016, the S&P 600 Small Cap index rose 15.7% by year-end, in contrast to a 5% gain in the S&P 500. After the July 2024 incident, the S&P 600 increased by 6.4% by the end of the month, while the S&P 500 dropped by 1.6%.
Limited Downside for Harris Win
Even in a scenario where Vice President Kamala Harris wins the presidency, Wells Fargo projects only limited downside for small caps, with an estimated 2-3% underperformance. The report does, however, emphasize that Harris’s policies are less clearly defined, making it challenging to forecast their exact impact on the market.
Broader Economic Factors
Wells Fargo also highlights other macroeconomic factors, such as the Atlanta Federal Reserve’s projected 3.1% GDP growth for Q3, which exceeds consensus estimates. Historically, instances where GDP growth outperforms expectations have led to significant gains for small-cap stocks. The GDP report, scheduled for release on October 30, is seen as a potential catalyst for the small-cap segment.
Market Positioning and Strategy
Wells Fargo recommends that investors add small-cap exposure in anticipation of these positive factors.
“Time for a tactical shift to smaller caps and select cyclicals related to relative performance, expected returns around the election, and a possible GDP catalyst,” the analysts continued.
Long-Term Investment View
Despite the near-term optimism for small caps, Wells Fargo maintains a preference for mid-cap growth stocks over the long term, citing a favorable risk-reward profile.
