👉️ Donald Trumps Latest on the “Trade War”: Chinese Tariffs Reduced and Trade Agreement with the U.K. 🗒️ 

👉️ The Case for Small-Cap Value Stocks in a Tech-Heavy Market: The Pros and Cons of Owning Small-Cap Value Stocks 💰️ 

👉️ Scale Your Portfolio in 2025: Strategies You May Not Have Thought Of To Grow Your Wealth to Astronomic Levels 📈 

Donald Trumps Latest on the “Trade War”

U.S stocks ended last week in quieter fashion than expected after Trump’s trade agreement with the U.K. and his proposal of 80% tariffs on Chinese imports, a reduction from the 145% tariffs imposed earlier this year.

The Dow Jones Industrial Average dipped, while the Nasdaq Composite and S&P 500 hovered near flat.

The proposed 80% tariff (though lower) still threatens trade relations between the U.S. and China.

U.S. and Chinese officials, including Treasury Secretary Scott Bessent, will meet to try to de-escalate tensions.

China’s April data revealed a sharp decline in U.S. exports (down over 20% year-over-year) while Southeast Asia shipments grew.

Investors await comments from the Federal Reserve as well after warning tariffs could increase unemployment and inflation, opting to hold interest rates steady.

The Case for Small-Cap Value Stocks in a Tech-Heavy Market

Small-cap value stocks, which are characterized by low price-to-earnings (P/E) ratios and market capitalizations typically under $2 billion, provide investors a big opportunity in todays tech-heavy market.

Large-cap growth stocks, mainly in the tech space, continue to dominate portfolios but come with inflated valuations.

Smaller-cap value stocks offer investors like you diversification, undervaluation and resilience in a quickly growing sector.

Lets talk numbers…

Over the last 20 years, the Russell 2000 Value Index $IWN ( ▲ 0.09% ), a benchmark for small-cap value, delivered an annualized return of 7.55%.

The Russell 1000 Growth Index $IWF ( ▼ 0.19% ), a benchmark for mid-larger cap growth stocks, delivered an annualize return of 12.16%.

That presents a better case for mid-larger cap growth stocks, but lets dive more into the numbers and see why it’s not always about total return.

In 2022, when inflation surged and interest rates rose, the Russell 2000 Value Index fell by -20.48%, while the tech-heavy Nasdaq Composite fell nearly 33%.

This difference highlights small-cap value’s resiliency in inflationary environments, as these companies typically operate domestically, making them less exposed to global supply chain disruptions that have more of an impact on the tech giants.

As of May 8, 2025, the Nasdaq’s forward P/E ratio is ~24.43, which is considered to be stretched given the Nasdaq’s historical P/E chart below, with the exception of 2001.

In contrast, the Russell 2000 Value Index current TTM P/E ratio is 13.5, as per Yahoo Finance on May 8, 2025.

This gap could suggest that small-cap value stocks are currently undervalued compared to the giants of the Nasdaq, offering a margin of safety and growth potential for you as an investor when market sentiment shifts from growth to value, as it does often.

Finally, small-cap value stocks provide diversification benefits.

Their correlation with large-cap tech stocks is low, averaging ~0.65 over the past decade. The reduced correlation helps to stabilize portfolios when tech stocks fall.

Additionally, small-cap value stocks are frequent acquisition targets and can boost returns for shareholders.

For example in 2020, Momenta Pharmaceuticals, a small-cap biotech company, was acquired at a 70% premium for $6.5 billion which delivered significant shareholder value.

Another thing to note is that small cap stocks have outperformed the smallest large cap stocks, dating back to 1990.

Looking at the chart below, you can see the comparison between the Russell 2000 and the bottom tercile of the Russell 1000 by market cap.

The results speak for themselves.

With all that being said, small-cap value stocks can be volatile, with higher beta’s than large-cap stocks.

Some may even be value traps, in other words a stock with low valuations due to weak fundamentals.

And while small-cap stocks thrive in certain conditions, they can lag during tech-driven bull markets, as we saw in 2020.

Small-cap stocks still offer you a solid hedge in your portfolio.

And you can own them through an ETF like the Vanguard Small-Cap Value ETF $VBR ( ▲ 0.09% ) or by picking them individually (though more of a risky approach).

With their historical outperformance in certain markets, attractive valuations, and diversification benefits, small-cap value stocks can be a strategic addition to your portfolio in 2025.

See you in the next one!

Alex (The Dividend Dominator)
Founder and CEO of Dividend Domination Inc.
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