The prime indicator of small-cap performance, the Russell 2000, is up almost 9% the past five days. As such, small-cap equities are having their own post-election rally and it could sustain itself through the rest of the year and beyond.
In the more broad year-to-date performance, the Russell 2000 index is up 40%, which handily beats the S&P 500’s 26% YTD gain. Corroborating with the Russell 2000 is the MSCI ACWI Small Cap, which is also up for the year, but not as much as the Russell 2000. is its own 28% YTD gain.
Small-cap equities have the ability to make outsized moves, but only after their large-cap brethren have already done so. This allows investors to cycle out of large-cap equities when they run out of steam and into small-caps.
The capital markets are already expecting an economic environment of less taxes under President-elect Donald Trump in 2025 combined with additional tailwinds of more rate cuts. This should give small-caps upside as 2024 winds down. In fact, some analysts think a small-cap rally could extend itself for another year; possibly two.
“I do think there’s still a lot of upside,” said Fundstrat’s Head of Research Tom Lee. “So I think small-caps could, over the next couple of years, outperform by more than 100%,”
3X The Small-Cap Trade
Given its direct correlation to the Russell 2000 index, the Direxion Daily Small Cap Bull 3X Shares (TNA ) has also pushed higher in the past week to almost a 40% gain for the year. The fund provides 300% exposure to the index, allowing traders to maximize their profits if small-cap equities continue to show more upside through the rest of the year.
Alternatively, if small-caps falter in the interim, traders can also use the Direxion Daily Small Cap Bear 3X Shares (TZA ). It takes the opposite direction of TNA to give traders more flexibility and tactical exposure to the Russell 2000 regardless of whether it heads up or in the case of TZA, when it heads down.
Irrespective of cap size, equities can always be prone to volatility, so having the ability to trade both bullishness and bearishness will allow traders the ability to profit in any market.
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