Election, economic risks fading for small caps: Wells Fargo

Investing.com — Small caps are lagging the broader market month to date in October, but are poised to continue to rack up gains amid ongoing U.S. economic growth and fading elections risks, Wells Fargo said in a Thursday note.

“Small cap outlook improving with GDP, absorption of higher rates, and fading election risk,” Wells Fargo said.

Economists expect GDP for 2025 to 2026 at 1.9% and 2.0%, respectively, but Wells Fargo believes the “potential for upward GDP revisions is significant,” paving the way for small caps to continue growth regardless of who wins the race to the White House. 

“This dynamic may keep us in the [small cap] trade near term even with a Harris victory,” Wells Fargo said ahead of the Nov. 5 election. 

The latest odds from betting markets put Trump ahead of Harris at 63% to 37%. 

History is also on the side of small caps. Small caps outperformed in the three months after both the Trump 2016 and Biden 2020 wins, Wells Fargo said. “Longer term, both administrations were good for Growth stocks.”