Cantor bullish on Russell 2000, sees chances of Trump Nov. win higher than markets expect

Cantor Fitzgerald said it’s bullish on the Russell 2000 (RTY) as it sees higher chances of former President Donald Trump winning re-election than what markets are expecting, and for his potential return to the White House to benefit domestic small-cap stocks.

Polling remains tight, with The New York Times early Tuesday showing Vice President Kamala Harris with a 3-point national average lead and virtually tied with Trump across seven battleground states. Cantor Fitzgerald, in a Monday note, pointed to a RealClearPolitics electoral map showing no toss-up states and Trump winning with 302 electoral college votes, and Cantor said the tally may not be considering likely under-polling for Trump.

“Overall, it looks like there are very few opportunities to change the momentum that is currently in Trump’s favor,” Eric Johnston, chief equity and macro strategist at Cantor, said, noting in part the lack of scheduled debates between the candidates before the November election. Cantor said it’s bullish on the Russell 2000 (RTY) for the next two months. ​​

”With a Trump win, we would expect this will benefit domestic companies due to 1) lower tax rates 2) similar or greater spending than current 3) China-product tariffs making U.S. goods more attractive 4) less financials- and overall-small business regulation 5) greater certainty overall, which encourages more risk taking in equity markets and economy 6) higher consumer confidence,” Cantor said.

In this market, the Russell 2000 (RTY) has been a “major laggard” and could be “ripe for bottom fishing in this bull market,” it said. The small-caps gauge is up ~11% YTD while the S&P 500 (SP500) is up ~23%.

Cantor said the iShares Russell 2000 ETF (NYSEARCA:IWM) stands to be part of a broader trade where money leaves mega cap/secular growth stocks and goes into stocks with various characteristics such as value, down-the-quality scale, and capital-markets levered, the firm said. It also sees inflationary-levered assets including bitcoin (BTC-USD) and gold (XAUUSD:CUR) as beneficiaries of a Trump win.

Trades that represent that view include:

• Long (IWD) vs Short IWF
• Long (IWM) vs Short (SPY)
• Long bitcoin miners
• Long (GS) and (MS) vs short (QQQ)

Johnston also presented these (IWM) trade ideas:

• Long IWM 22Nov 235/250 Call Spread for 1.77
• Long IWM Dec 240/260 Call Spread 2.00
• Long IWM 29Nov 235/245/255 Call Fly for .95
• Long IWM 29Nov 245 call 1.02

One concern about the bullish (RTY) call is potentially higher Treasury yields, Johnston said. However, debt-to-EBITDA levels are lower now than they were in 2016 when the Russell 2000 (RTY) charged higher after the 2016 election and outperformed the S&P 500 (SP500), he said.

If Harris wins, small-caps “can perform fine” relative to large-caps based on where small-cap is relative to large-cap which is not pricing much of a Trump win, Johnston said.

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