Bank of Japan Signals Readiness for Near-Term Rate Hike as Inflation Nears Target 
Trump Lifts 25% Tariff on Indian Goods in Strategic U.S.–India Trade and Energy Deal 
Silver Prices Plunge in Asian Trade as Dollar Strength Triggers Fresh Precious Metals Sell-Off 
Gold and Silver Prices Rebound After Volatile Week Triggered by Fed Nomination 
South Korea Assures U.S. on Trade Deal Commitments Amid Tariff Concerns 
Fed Governor Lisa Cook Warns Inflation Risks Remain as Rates Stay Steady 
South Africa Eyes ECB Repo Lines as Inflation Eases and Rate Cuts Loom 
Oil Prices Slide on US-Iran Talks, Dollar Strength and Profit-Taking Pressure 
Japan Economy Poised for Q4 2025 Growth as Investment and Consumption Hold Firm 
Vietnam’s Trade Surplus With US Jumps as Exports Surge and China Imports Hit Record 
China Extends Gold Buying Streak as Reserves Surge Despite Volatile Prices 
U.S.-India Trade Framework Signals Major Shift in Tariffs, Energy, and Supply Chains 
U.S. Stock Futures Slide as Tech Rout Deepens on Amazon Capex Shock 
Trump Signs Executive Order Threatening 25% Tariffs on Countries Trading With Iran 
Asian Stocks Slip as Tech Rout Deepens, Japan Steadies Ahead of Election 
Global Markets Slide as AI, Crypto, and Precious Metals Face Heightened Volatility 
Wells Fargo analysts believe current market conditions offer a compelling opportunity for short-term gains in small-cap stocks, given the close U.S. presidential race and certain economic catalysts. The investment bank suggests that the "50/50" nature of the race, particularly with the potential for a Trump victory, could result in favorable returns for small caps.
"Small caps have a positive expected near-term relative return as the presidential race is essentially a coin toss (per RCP) with five weeks to go," the analysts wrote. "Expected small-cap returns are favorably skewed, with significant near-term outperformance in the event of a Trump win and limited underperformance with a Harris victory."
Potential Outperformance with Trump Win
If Trump is re-elected, Wells Fargo anticipates a 5-10% outperformance in small caps within one to three months. This prediction is based on market behavior following the 2016 election and the reaction to an assassination attempt on Trump in July 2024. In 2016, the S&P 600 Small Cap index rose 15.7% by year-end, in contrast to a 5% gain in the S&P 500. After the July 2024 incident, the S&P 600 increased by 6.4% by the end of the month, while the S&P 500 dropped by 1.6%.
Limited Downside for Harris Win
Even in a scenario where Vice President Kamala Harris wins the presidency, Wells Fargo projects only limited downside for small caps, with an estimated 2-3% underperformance. The report does, however, emphasize that Harris’s policies are less clearly defined, making it challenging to forecast their exact impact on the market.
Broader Economic Factors
Wells Fargo also highlights other macroeconomic factors, such as the Atlanta Federal Reserve’s projected 3.1% GDP growth for Q3, which exceeds consensus estimates. Historically, instances where GDP growth outperforms expectations have led to significant gains for small-cap stocks. The GDP report, scheduled for release on October 30, is seen as a potential catalyst for the small-cap segment.
Market Positioning and Strategy
Wells Fargo recommends that investors add small-cap exposure in anticipation of these positive factors.
“Time for a tactical shift to smaller caps and select cyclicals related to relative performance, expected returns around the election, and a possible GDP catalyst,” the analysts continued.
Long-Term Investment View
Despite the near-term optimism for small caps, Wells Fargo maintains a preference for mid-cap growth stocks over the long term, citing a favorable risk-reward profile.
