Japanese Pharmaceutical Stocks Slide as TrumpRx.gov Launch Sparks Market Concerns 
Global Markets Slide as AI, Crypto, and Precious Metals Face Heightened Volatility 
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RBI Holds Repo Rate at 5.25% as India’s Growth Outlook Strengthens After U.S. Trade Deal 
South Korea Assures U.S. on Trade Deal Commitments Amid Tariff Concerns 
China Extends Gold Buying Streak as Reserves Surge Despite Volatile Prices 
Silver Prices Plunge in Asian Trade as Dollar Strength Triggers Fresh Precious Metals Sell-Off 
Dollar Near Two-Week High as Stock Rout, AI Concerns and Global Events Drive Market Volatility 
India–U.S. Interim Trade Pact Cuts Auto Tariffs but Leaves Tesla Out 
Dollar Steadies Ahead of ECB and BoE Decisions as Markets Turn Risk-Off 
Russian Stocks End Mixed as MOEX Index Closes Flat Amid Commodity Strength 
Gold and Silver Prices Slide as Dollar Strength and Easing Tensions Weigh on Metals 
U.S.-India Trade Framework Signals Major Shift in Tariffs, Energy, and Supply Chains 
Japan Economy Poised for Q4 2025 Growth as Investment and Consumption Hold Firm 
Trump Signs Executive Order Threatening 25% Tariffs on Countries Trading With Iran 
Fed Governor Lisa Cook Warns Inflation Risks Remain as Rates Stay Steady 
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.
