Great 2016 for SMID-Cap May Leave Hangover in 2017 - Jefferies (IWM)

November 29, 2016 2:36 PM EST

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Jefferies released its equity strategy surrounding SMID-Caps. 2016 has been a strong year for the segment, with the Russell 2000 making new all-time highs every day. The equity strategist at Jefferies believe that 2017 has the potential to be another great year for small caps. However, with an expected hangover in the 1H, 2017 could also be challenging.

Jefferies strategist Steven DeSanctis commented, "A Trump presidency will turn 2017's forecasts on their heads, as most investors are not sure what to expect from the President elect. However, the simple thing for us is that the Russell 2000 now trades at over 20x forward estimates and is back to levels not seen since 2001."

There is a way that things can go really right for small caps boosting performance. If companies feel comfortable with the fiscal policies and pick up spending, this can help boost GDP. Small caps thrive on better GDP growth and will see a pick up of earnings and sales growth.

DeSanctis continued, "If the great rotation is upon us with money coming out of bond funds and into equity funds, coupled with the fact that there are very few stocks left in the US, this could continue the 2016 momentum."

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