The performance of small-cap stocks (IWM  ) is showing that the strength in the Trump economy and the stock market has been concentrated in mega-cap, tech stocks like Microsoft (MSFT  ), Apple (AAPL  ), Google (GOOG  ), and Amazon (AMZN  ).

Winners and Losers

Small caps are now lower than they were on Trump's election by 2%. Over that same period, the Nasdaq 100 (QQQ  ) is up 60%, Microsoft is more than 150% higher, Google is more than 40% higher, Amazon is more than 100% higher, and Apple is 130% higher. Many of the industries that Trump targeted and intended to help in his campaign rhetoric and by voting and donor support are ironically, actually down during this period.

For example, U.S. Steel (X  ) is down nearly 75% since Trump's election and down 88% since tariffs were first announced in early 2018. Arch Coal (ARCH  ) is down more than 60% since November 2016. Another group that missed out on the gains over the past three years despite being a part of Trump's base are farmers. Despite a trade war which caused massive disruptions, there hasn't been much material success in improving their situation at least based on average prices. For example, soybeans are down 15% despite the "phase 1" of the trade deal which involved China making huge purchases.

Small-Cap Relative Weakness

Small-caps outperformed from early 2016 to late 2018. Since then, it underperformed the broader market. Notably, it made a lower high when the Nasdaq and S&P 500 (SPY  ) made a higher high in late-February. One obvious contributor is the weakness in financial stocks due to the decline in interest rates and many of them having large exposure to the energy sector.

The stock market is in a bear market-facing serious challenges. One lesson from bear markets is that they tend to last multiple months and have multiple entry points potentially at higher lows or lower lows. There tends to be liquidation in multiple asset classes, especially ones with weak fundamentals. Small-caps are also less positioned to benefit with dovish monetary policy, and they are the most vulnerable to negative economic shocks given their lack of financial cushion.