The big event of 2024 is just around the corner. The US elections that will pit Kamala Harris and Donald Trump against each other will be held on November 5, in less than two weeks. And, faced with a scenario that is expected to be volatile, Federated Hermes is betting on small and medium caps to protect itself from ups and downs.
The Russell 2000, which brings together small capitalized companies in the US, has advanced 10% this year and during the year its price has set historical highs. In a context of widespread increases throughout the US market, Charlotte Daughtrey, specialist in Equity Investment at Federated Hermes explains that the holding of the elections will bring volatility to the market. “When we think about the United States elections from a European perspective we think about volatility, although it really doesn’t have to be that way. But this time it is different, since there is no clear winner,” argues Daughtrey. In this sense, the specialist argues that the context of volatility will not only occur in the days after the elections, but It could even last until January, since knowing the winner will take time.
In this sense, Charlotte Daughtrey is committed to small and medium capitalized companies in the US to add quality to the portfolios and, therefore, get protection from this volatility. From Federated Hermes they add that the victory of either of the two candidates can benefit this sector: “Trump can be more beneficial at first, with a policy of fewer taxes and less regulation, but that can lead in the long run to a new increase in inflation and, again, in an intervention by the Federal Reserve to raise rates, which could harm the small caps. “Harris is expected to continue Biden’s measures and will try to demonstrate that she deserves the position, so we do not expect aggressive policies that could generate discontent.”
From Federated Hermes they list four tailwinds for the small caps: structural change in the economic context (with the drop in interest rates, although not the return, for the moment, to 0 rates), attractive valuations (which offer discounts), relocation and well-being of the south of the country. In relation to this last point, they explain that the strong demographic growth expected in the US will benefit the infrastructure and materials sectors in the development of the cities that will have to support this growing population and significant opportunities will be created in the south of the country. where they expect the population to be concentrated to a greater extent.
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