Banking, Crypto, and Small-Cap Industrial ETFs Rally After Trump Wins a Second TermBanking, Crypto, and Small-Cap Industrial ETFs Rally After Trump Wins a Second Term
An analysis of how Trump's election provided tailwinds to some ETF sectors, including banks and financials and crypto-based funds.
Donald Trump won the 2024 U.S. presidential election with a decisive mandate for a second term. His Republican Party will have a majority in the U.S. Senate, and–at the time of publishing this report–appears likely to hold a majority in the U.S. House of Representatives as well.
On Nov. 6, 2024, the day after the election, the SPDR S&P 500 ETF Trust (SPY) was up 2.5%. Prices of ETFs reflecting multiple sectors (such as banks, cryptocurrencies, and domestic-focused small-cap industrials) appreciated that day.
Bank ETFs Benefit From the Possibility of Weaker Regulation
Bank ETFs rallied the day after the presential election, since Republicans have historically favored less regulation of financial institutions and been less hawkish on antitrust action. The Trump administration could weaken the Consumer Financial Protection Bureau and limit efforts such as capping late fees on credit cards. The Invesco KBW Bank ETF (KBWB), which holds major bank stocks, was up 10.7% on Nov. 6. Another ETF that appreciated on that day was the iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI), which was up 7.5%. It provides targeted exposure to capital markets businesses, including M&A-focused banks like Evercore, Lazard and Moelis & Company, which could benefit from an administration that is less focused on antitrust action.
Table 1: Top 10 Holdings in KBWB and IAI
Crypto ETFs Likely to Gain From Supportive Administration
Trump made his support of crypto one of the pillars of his political agenda, using it to appeal to young men and tech entrepreneurs. His declared support is a positive signal for the crypto ecosystem, particularly given that senior politicians in the incoming administration are pro-crypto. Incoming Vice President J.D. Vance is a former venture capitalist with ties to Silicon Valley while incoming Ohio Sen. Bernie Moreno is a former crypto entrepreneur. The current U.S. Securities and Exchange Commission leadership has taken enforcement action against Coinbase Global and Binance, but SEC chairman Gary Gensler is likely to be replaced by a more crypto-friendly administrator.
Table 2 summarizes some of the ETFs that provide both spot and equity-based exposure to the cryptocurrency category. The iShares Bitcoin Trust (IBIT) and the Grayscale Ethereum Trust ETF (ETHE) were up 9.8% and 11.2%, respectively, on Nov. 6. Meanwhile, equity-based CoinShares Valkyrie Bitcoin Miners ETF (WGMI) and the VanEck Digital Transformation ETF (DAPP) were up 17.8% and 17.4%, respectively.
Table 2: Spot and Equity-Based Crypto ETFs in the U.S.
Import Tariffs Could Benefit Small-Cap Industrial ETFs
Small-cap ETFs, which tend to hold stocks of domestic-oriented businesses, rallied after the election results were declared. The iShares Russell 2000 ETF (IWM) was up 5.8% on Nov. 6. This was driven by expectations that market breadth could improve after a period where mega cap tech stocks like NVIDIA Corp. have driven earnings and returns in the United States.
On the campaign trail, Trump suggested that he would impose a 10% tariff on all imported goods and 60% tariff on all Chinese imports. If tariffs are put in place, this could hurt lower-cost retailers like Five Below, Dollar General and Dollar Tree. However, it could benefit ETFs that hold small-cap firms that manufacture and sell domestically. The First Trust RBA American Industrial Renaissance ETF (AIRR) and Tema American Reshoring ETF (RSHO) were up 7.9% and 6.4%, respectively, on the day after the election. These ETFs hold re-shoring and domestic-focused industrials like Eaton, Mueller Industries and Applied Industrial Technologies.
Looking Ahead
The market in the U.S., including sectors like banking, small-cap industrials and crypto, reacted positively to the election of Trump. Whether this rally can be sustained in 2025 as the new administration takes over remains to be seen. ETF investors will be watching closely to see which of the policy proposals made on the campaign trail will be actually implemented.
Aniket Ullal is SVP, ETF Research and Analytics for CFRA, one of the world’s largest providers of independent investment research.
