‍What should I expect in the stock market following the Presidential Election?

The 2024 U.S. presidential election has reshaped the investment landscape, creating substantial growth potential for smaller companies. Inspire’s U.S. Equity ETFs, which tend to emphasize smaller market cap exposure in comparison to secular counterparts, are strategically positioned to benefit from these shifting dynamics. While these ETFs previously struggled to compete with the mega-cap-dominated S&P 500, the current market conditions may create a more favorable environment for smaller-cap stocks, potentially supporting a recovery in this segment.

Figure 1 compares the weighted average market capitalization of the S&P 500 and Inspire’s U.S. Equity Index Funds (Inspire 500 ETF “PTL”, Inspire 100 ETF “BIBL”, and Inspire Small/Mid-Cap ETF “ISMD”), highlighting this market cap difference and smaller-cap-tilt of Inspire’s U.S. Equity Index Funds.

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From Headwinds to Tailwinds: A Shift in Favor of Small Caps

In recent years, the dominance of mega-cap technology firms in the S&P 500 presented challenges for smaller-cap- focused ETFs, such as Inspire’s U.S. Equity Index funds.

However, the post-election environment is expected to shift momentum in favor of smaller companies due to several key factors:

Tariff Adjustments

Expected increases in tariffs during the Trump presidency could reduce competition from foreign firms, allowing U.S. small caps to capture greater market share.

Domestic Manufacturing Focus

Pro-U.S. policies encouraging local production are likely to drive demand for American-made goods and services, which could benefit smaller, more localized companies. ‍

Tax and Regulatory Benefits

Corporate tax cuts and regulatory rollbacks, hallmarks of the Trump administration, disproportionately benefit small caps. These companies often lack the sophisticated tax strategies of mega-cap companies, and reduced compliance costs free up capital for innovation, hiring, and expansion.

Monetary Policy Support

Anticipated Federal Reserve rate cuts are especially advantageous for smaller firms, which tend to rely more on debt for growth. Lower borrowing costs, combined with an economic stimulus- focused agenda, could benefit small/mid cap companies, like those held in Inspire ETFs.

Historical Post-Election Performance

‍Historically, small-cap stocks have outperformed large-caps in the year following a U.S. presidential election, as illustrated in Figure 2.

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These indicators suggest that the challenges faced by small- and mid-cap stocks in recent years may be giving way to a more favorable market environment. Inspire U.S. Equity ETFs, with their distinct small-cap emphasis, are well-equipped to thrive in this new landscape. For investors seeking to capitalize on evolving market dynamics while aligning with biblical values, Inspire ETFs present a unique and compelling opportunity.

¹https://www.abrdn.com/en-us/investor/insights-and-research/a-trump-card-for-us-small-caps