Here's how much a ‘Bro Billionaire' group of stocks is trouncing small caps under Trump

Since Trump's election, a BofA-defined group of "Bro Billionaire" stocks, including Palantir, Nvidia, Meta, and Tesla, have significantly outperformed the Russell 2000 small-cap index, rising over 45% compared to the index's 7% decline. This divergence is attributed to factors like tariffs, which disproportionately affect smaller businesses, and higher Treasury yields, making financing more expensive for them, while large-cap tech companies benefit from substantial cash reserves; despite a recent jobs report lifting the broader market, uncertainty around tariffs and the budget bill's impact on the U.S. deficit continue to weigh on small-cap performance.

Analysis

Since President Trump's election, a BofA Global Research-identified collection of 'Bro Billionaire' stocks, encompassing technology and cryptocurrency names such as Palantir Technologies Inc., Nvidia Corp., Meta Platforms Inc., and Tesla Inc., has demonstrated significant outperformance, appreciating by over 45%. This contrasts sharply with the Russell 2000 small-cap index, which experienced a decline of approximately 7% over the same timeframe. This divergence is largely attributed to the disproportionate impact of tariffs and related uncertainties on smaller enterprises, coupled with elevated longer-duration Treasury yields (the 10-year Treasury yield recently rose 10 basis points to 4.49%) that have increased borrowing costs for small-cap firms, which often depend on consistent access to financing. In contrast, large-cap technology companies have been somewhat shielded by their substantial cash reserves. Despite a temporary market boost from a stronger-than-expected May jobs report, unresolved concerns regarding the Republican budget bill's potential effects on the U.S. deficit and subsequent Treasury issuance continue to loom. It is noteworthy that even within the high-performing 'Bro' stock group, individual company performance can vary significantly, as illustrated by Tesla Inc.'s stock, which has fallen over 25% year-to-date amid declining electric-vehicle sales and a public disagreement between its CEO and President Trump. The anticipated recovery for small-cap stocks in 2025 remains elusive, and the impending expiration of a 90-day suspension on certain tariffs in early July introduces further market uncertainty.

Key Decisions for Investors

• Investors should critically evaluate the sustained outperformance of selected large-cap technology and cryptocurrency-related equities against the ongoing challenges faced by small-cap stocks, particularly their sensitivity to tariff policies and increased financing costs.
• It is advisable to closely monitor developments concerning the early July tariff pause expiration and the U.S. Republican budget bill, as these factors could materially affect Treasury yields and the relative attractiveness of small versus large-cap investments.
• While specific 'Bro Billionaire' stocks have yielded substantial returns, the significant underperformance of Tesla underscores the necessity for careful, individual stock selection and robust risk management, even within currently favored market segments.