Deregulation Under Trump 2.0: A Boon for Small-Cap Stocks, According to Jefferies

Deregulation under a hypothetical second term of Donald Trump is expected to have a significant positive impact on small-cap stocks, according to Jefferies. This outlook is based on several key factors and policy expectations.

Deregulation and Government Efficiency:
- Trump has proposed the creation of a new Department of Government Efficiency (DOGE), with Elon Musk and Vivek Ramaswamy leading efforts to cut $2 trillion from the federal budget. This would involve widespread deregulation, which could reduce compliance costs for small companies, making it easier for them to operate and expand.
Tax Cuts and Economic Stimulus:
- The Tax Cuts and Jobs Act (TCJA) is set to expire at the end of 2025, and there are proposals for new tax cuts. These measures could stimulate economic growth and increase corporate profitability, particularly benefiting smaller companies that are more sensitive to changes in tax policy.
Industrial Policy and Support for Key Sectors:
- The administration is expected to focus heavily on industrial policy, which may include tariffs and subsidies to support domestic industries. This could provide a competitive advantage to small-cap companies in sectors such as defense, energy, and technology, potentially leading to increased investment and growth in these areas.
Energy and Environmental Policies:
- Despite some shifts in federal policy, the energy transition remains a priority. Sectors like natural gas, carbon capture, and renewable technologies could see continued investment. Small-cap companies in these areas might benefit from favorable capital and regulatory environments.

Preview

Market Dynamics and Investor Sentiment:
- The market has already shown a rotation towards small-cap stocks, with significant rallies compared to larger indices like the S&P 500 and NASDAQ 100. This trend is expected to continue as investors seek growth opportunities in a deregulated environment.
Risks and Volatility:
- While the deregulation and policy changes are generally favorable for small-cap stocks, investors should be aware of the higher risks involved. Smaller companies are often more volatile and dependent on capital markets, which could amplify both gains and losses.

In summary, deregulation under a second Trump administration is anticipated to create a favorable environment for small-cap stocks, driven by reduced regulatory burdens, tax cuts, supportive industrial policies, and continued investment in key sectors. However, investors should remain cautious of the inherent volatility and risks associated with smaller companies.

Deregulation Under Trump 2.0: A Boon for Small-Cap Stocks, According to Jefferies

Deregulation and Government Efficiency:
- Trump has proposed the creation of a new Department of Government Efficiency (DOGE), with Elon Musk and Vivek Ramaswamy leading efforts to cut $2 trillion from the federal budget. This would involve widespread deregulation, which could reduce compliance costs for small companies, making it easier for them to operate and expand.
Tax Cuts and Economic Stimulus:
- The Tax Cuts and Jobs Act (TCJA) is set to expire at the end of 2025, and there are proposals for new tax cuts. These measures could stimulate economic growth and increase corporate profitability, particularly benefiting smaller companies that are more sensitive to changes in tax policy.
Industrial Policy and Support for Key Sectors:
- The administration is expected to focus heavily on industrial policy, which may include tariffs and subsidies to support domestic industries. This could provide a competitive advantage to small-cap companies in sectors such as defense, energy, and technology, potentially leading to increased investment and growth in these areas.
Energy and Environmental Policies:
- Despite some shifts in federal policy, the energy transition remains a priority. Sectors like natural gas, carbon capture, and renewable technologies could see continued investment. Small-cap companies in these areas might benefit from favorable capital and regulatory environments.

Preview

Market Dynamics and Investor Sentiment:
- The market has already shown a rotation towards small-cap stocks, with significant rallies compared to larger indices like the S&P 500 and NASDAQ 100. This trend is expected to continue as investors seek growth opportunities in a deregulated environment.
Risks and Volatility:
- While the deregulation and policy changes are generally favorable for small-cap stocks, investors should be aware of the higher risks involved. Smaller companies are often more volatile and dependent on capital markets, which could amplify both gains and losses.