ETFs related to the 'Trump Trade', including bitcoin, financials, and small caps, have seen significant gains since November 5, with some analysts warning of overbought conditions. A second Trump term is expected to bring a deregulatory environment and tax cuts, which could benefit these sectors by encouraging growth and risk-taking. However, the short-term performance of these ETFs may depend more on market sentiment than fundamentals, and it remains to be seen if they have more room to run higher.
Assets and sectors expected to benefit from a second Trump term, collectively known as the “Trump Trade,” may be reaching overbought conditions.
The largest spot bitcoin exchange-traded fund, the iShares Bitcoin Trust ETF (IBIT) , has rocketed 35%, while small caps and financials are up 8% and 9% since Nov. 5, as measured by the iShares Russell 2000 ETF (IWM) and the Financial Select Sector SPDR Fund (XLF) , respectively.
While a crypto-friendly Trump administration prepares to take over the White House in 2025, many analysts are forecasting that bitcoin’s price will reach $100,000 by the end of this year. At $68,000 just a few weeks ago, such a high level did not seem achievable so soon, but BTC touched $93,000 Wednesday afternoon, just under 8% gain away from the six-figure mark.
A deregulatory Trump administration is seen as a potential benefit for the financials sector while a pro-business administration and its promotion of tax cuts may lift productivity and profit margins for U.S. corporations, especially small caps.
Whether these Trump Trade ETFs have more room to run higher in the short term may depend more on market sentiment than fundamentals, which are yet to be accurately quantified.
Tax Cuts, Deregulation, and Trump Trade ETFs
A combination of tax cuts and deregulation can significantly impact prices for the IBIT, XLF, and IWM ETFs, or cryptocurrency, financials, and small caps, respectively, by creating a favorable investment environment that encourages growth and risk-taking:
The combined effect of tax cuts and deregulation typically drives economic optimism, bolsters market confidence, and can create a risk-on environment, often benefiting high-growth sectors like small caps, financials, and speculative investments like cryptocurrencies.
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