Alexander Green has developed a small cap portfolio that is specifically designed to work in any market environment.
In historical testing, it grew 6 times faster than the market and generated a total return of 3,679% over the past 25 years.
Go here to get every metric needed to build this portfolio.
Did I mention Alex is also giving away the ticker symbol of a gold stock he’s watching – for free? Go here now.
– Nicole Labra, Senior Managing Editor
All the major U.S. stock indexes rose last week in the wake of Donald Trump’s election victory.
President-elect Trump’s promises of lower corporate taxes, deregulation, and a generally more pro-business environment sent the Dow Jones Industrial Average 5.6% higher, the S&P 500 up 4.7%, and the Nasdaq Composite 5.7% above the pre-election level.
But the Russell 200 index of small cap firms crushed them all. It soared 8.6% in just a few days.
That outperformance continued into this week, as this chart shows…
What’s going on here?
Well, because of the election outcome and the Federal Reserve’s ongoing monetary easing cycle, it seems that the stars are suddenly aligned for small cap and microcap stocks to outperform mid cap and large cap stocks in the coming year.
Let’s count the advantages small cap and microcap companies suddenly enjoy…
Lower Rates
The Fed already cut its target interest rate twice this year, each time by a quarter percentage point. That rate now stands at a range of 4.5% to 4.75%.
Futures traders believe the Fed will continue to cut, taking the Federal Funds rate down another three-quarters of a point to a full point by this time next year.
That augurs significantly lower borrowing and debt service costs for companies. That’s particularly important for smaller companies, which tend to rely more heavily on external borrowing to sustain and grow their operations. They also carry more variable-rate debt.
And in fact, small caps have benefited the most during interest rate easing cycles.
Since 1954, small cap stocks gained on average 14.2% after the first Fed cut while large caps gained 9.4%. And a year after the first cut, small caps gained nearly 27% while large caps rose about 16%. An 11-percentage point outperformance is pretty significant for any asset class.
Lower Taxes
Trump has promised major tax reform in his second term in office.
Recall that in 2017, he and Congressional Republicans enacted tax cuts for both individuals and corporations. The corporate rate cut was particularly large, falling from 35% to 21% – and it boosted many businesses’ bottom lines and share prices.
However, major portions of that 2017 law will expire next year. And Republicans are enthusiastic about passing major tax legislation that goes even further. If they win the House, as is now expected, we will almost certainly see tax cuts move through congress. And on the campaign trail, Trump talked about cutting the corporate tax again, this time to 15%.
Again, such a cut would be good for most businesses. But it would be even better for smaller ones. Small firms tend to pay higher tax rates than their larger brethren due to their revenue composition. They rely more heavily on domestic revenues, which are more directly affected by U.S. corporate tax rates.
Last year, the average effective tax rate on S&P 500 large cap companies was 18.3%, primarily due to their larger international revenue streams. By contrast, small cap companies listed in the Russell 2000 paid an effective 21.2% tax rate.
So when tax rates fall, small firms feel a bigger and more immediate effect on their bottom lines – and tend to benefit more.
Higher Tariffs
Finally, Trump talked at length on the campaign trail about new tariffs on imported goods.
As discussed above, small cap and microcap firms get the majority of their revenue from domestic sources. They are generally not big exporters.
And tariffs are meant to protect domestically oriented firms, often at the expense of higher input costs and potentially retaliatory tariffs that multinationals could suffer in a protectionist landscape.
Put higher tariffs, lower taxes, and more affordable borrowing costs together, and the future is looking bright for small businesses and their share prices.
In fact, Alexander Green is giving away a new small cap stock recommendation in his new microcap strategy session.
It’s a gold stock that is growing dramatically.
Earnings jumped 1,195% year over year in the latest earnings release.
Alex reveals the ticker symbol for free here.
He’ll also give you his entire formula for picking microcap stocks, which you are welcome to use for yourself.
All you have to do is access his Microcap Millionaire Academy right here.
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