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The main US small capitalisation stock barometer has climbed to a new all-time high for the first time in more than two months amid optimism that the Trump administration will propose business tax reforms over the next few weeks.

The Russell 2000 index, which tracks companies with market values of roughly $300m – $2bn, climbed as much as 0.5 per cent on Monday to 1,395.8, knocking out its December 9, 2016 peak.

Large-cap stocks have already been trading at record highs; but the Russell took a breather following a more than 13 per cent rally from the election of Donald Trump in November to the end of 2016.

However, enthusiasm over small-caps has once again heated up after Mr Trump said last week that he will soon unveil a “phenomenal” business tax reform package.

Small-cap companies tend to face higher tax rates than large ones since they don’t have the same access to lower-tax havens, meaning they may benefit more if Mr Trump is successful in lowering the corporate tax rate.

“Small cap stocks are the likely beneficiaries of a Trump tax cut and infrastructure-spending bill,” noted Sam Stovall, chief investment strategist at CFRA.

Still, Mr Stovall also warned that “prices appear to be well ahead of fundamental forecasts and may therefore be vulnerable to downward readjustment.”

To that point, the Russell is valued at 19-times earnings over the next year — near the dot-com era peak from the turn of the millennium, according to calculations by Bank of America Merrill Lynch. That compares with a price-to-earnings ratio of 16.9-times for the S&P 500, the main US large-cap gauge.

Copyright The Financial Times Limited 2017. All rights reserved.
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