Small caps, financials, and industrials are each very sensitive to Washington’s policies, so how much the Trump administration can get done will go a long way toward determining if these investments perform well over the balance of the year. Recent underperformance of each of these areas likely reflects some loss of confidence in the Trump agenda, but small caps and financials have enough going for them, in our view, that we see recent weakness as potential opportunities, even with a scaled back policy path. Industrials, on the other hand, may need more help from the macroeconomic environment should the policy path disappoint.
Burt White is chief investment officer for LPL Financial.