What a difference a year makes…
I know it feels like an eternity rewinding back to November of 2023.
If you recall, stocks and investor sentiment hit rock bottom.
And at TradeSmith, we saw one of the biggest screaming buy opportunities of all time when we unleashed a powerful, undefeated bear-killer signal.
One year later, that signal remains undefeated, with the S&P 500 up a staggering 38.7%… very much in line with our expectations back then.
You’d think there’s not much portfolio gas left in the tank after such a climb…
But you’d be dead wrong.
The latest Donald Trump victory spells even more gains are coming for stocks… and two areas in particular are set to thrust into the new year.
If you’re still undecided on whether to keep riding this bull higher… today’s historical studies will add a serious vote of confidence.
Why Stocks Are Flying Post the Trump Victory
Many were surprised at the presidential vote tally. Trump performed better than most expected.
But the Republican Oval Office win is only part of the added investor confidence lately. The bigger scenario that’s unfolding is a red wave.
Republicans control the Senate and are likely to take control of the House. The latter isn’t yet determined at this writing, but it’s leaning toward a red victory.
Why this matters for stocks comes down to a few things:
- First, there’s a belief that new pro-growth policies are more likely
- Second, new favorable tax policies can be in the works
- Third, history shows that a Republican sweep is bullish for stocks
Regarding the last point, check this out…
Going back to 1945, the S&P 500 averages 12.9% annual returns when the GOP controls the White House and Congress. This is the best political scenario for Republican leadership:
This is surely part of the reason stocks have stunned the crowd lately.
But I believe there’s more to it.
If we revisit recent history, we can see how the markets behaved the last time we had a Trump victory in 2016. As a reminder, that was a red wave too.
If you’re scratching your head at why small- and mid-cap stocks are surging right now… turns out it echoes the last Trump victory.
I vividly remember the seismic shift. Post the 2016 presidential vote, the S&P SmallCap 600 and S&P MidCap 400 surged one month later, with gains of 17.8% and 12.1%, respectively.
These smaller groups easily outpaced large-cap equities. And the outperformance stretched to three months:
Also note how all benchmarks thrived six to 24 months later, in particular the Nasdaq 100.
It wouldn’t surprise me to see a similar setup into 2025 and beyond.
So how can you play this for your benefit? I’m glad you asked!
Now’s the perfect time to circle back on prior fallen angels in the small- and mid-cap arena.
One example I alerted you to back in August was trucking company Old Dominion Freight Line (ODFL).
Back then, shares were meandering along (black horizontal line in the chart below), and since the election they’ve exploded higher, easily trucking past the S&P 500 (SPY ETF):
That article from August included a few data-driven reasons to pick up the shares, including a relatively elevated dividend yield of 0.68%.
History shows that’s important. Anytime the company sported a forward yield of 0.5% or higher, it’s been a wonderfully powerful buy signal.
Here’s a recap that showed how ODFL averages a gain of 17.2% three months after such rare events. We’re not yet at the three-month mark, but so far the stock has ripped 12.7%:
Why I’m telling you about this stock today comes down to two items:
- First, according to the study above, there’s still a potential truckload left in the tank for ODFL given the 12-month average return
- Second, and likely more important for today, is the superior Quantum Score
There’s a lot of data out there not worth your time. But the Quantum Score is an elite way to size up a company instantly based on a company’s fundamental health and institutional support.
Below reveals how Old Dominion Freight Line is now in the Green Zone for liftoff with a rank of 74.1. Anything above 70 is the sweet spot for stocks to take off to the upside:
As I’ve said before, the reawakening for small- and mid-cap stocks is now.
November kicks off one of the most seasonally strong periods for these lesser-known pockets of the market.
Add to it that last time Trump won the Oval Office, those areas rallied like crazy.
Folks, 2025 is shaping up to be a very big year for many stocks that the media isn’t covering.
Regards,
Lucas Downey
Contributing Editor, TradeSmith Daily
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Source: TradeSmith