The post-election stock market rally that has been dubbed the “Trump trade” has the potential to extend well into next year, according to some market watchers.

Beyond the initial market pop driven by investors interpreting the election of Republican Donald Trump as bullish for markets, Aniket Ullal, head of ETF research at CFRA, anticipates a more business-friendly environment under Trump.

“This is generally bullish for ETFs,” Ullal said. “One of the factors driving the initial rally is the expectation of less regulations around financials and energy, but there are also expectations that the strength of the stock market could broaden into small- and mid-cap stocks.”

Jay Hatfield, chief investment officer at Infrastructure Capital in New York City, also sees a Trump presidency as bullish for smaller U.S. companies.

Small Caps Could See Bullish Path Ahead

“This is definitely bullish for small caps, but it is really more about specific sectors than market capitalization,” he said.

Hatfield noted that it is a common misconception that smaller companies in general are more leveraged and therefore more interest rate-sensitive .

“Smaller companies are de facto interest rate sensitive because the sectors of the index tend to be lower in technology and higher in financials and real estate and other companies that do better when we’re not in Fed tightening cycle,” he said. “But right now, we’re in a Fed loosening cycle, and we’re more optimistic about rates than the market because we think most of Trump’s policies are disinflationary.”

One of the shifts Hatfield expects under Trump is a Federal Trade Commission that will encourage consolidation.

“The most important thing to think about is that small companies are acquisition targets, but the FTC has been putting a lid on consolidation,” Hatfield said.

Then, there is the potential for a reduced corporate tax rate, down to 15% from the current 21%.

“There will be a new tax bill, and a corporate tax reduction will be in that bill,” said Hatfield, who expects the S&P 500 Index to gain 25% next year.

“And we think small caps will beat that 25%,” he added.

Ullal said the initial rally of financial sector stocks following last week’s election was in response to a more relaxed regulatory environment, considering the Republican track record of being “less hawkish on antitrust action.”

Another factor supporting small-cap stocks is the valuation levels of large-cap stocks, illustrated by the S&P 500’s forward price-to-earnings ratio of 22.3, compared to a historical average of 16.

Small- and mid-cap stocks, meanwhile, have forward p/es of around 17, which is in line with their historical averages.