Since US president Donald Trump came to power in 2017, he’s championed traditional American industries and US stocks have thrived. He’s made it clear throughout his tenure that he prioritises sectors such as oil, manufacturing, the auto trade and, above all, the blue-collar American worker.
We can expect similar messages if Trump is re-elected in the US election on 3 November — but does that necessarily mean a boost for these stocks?
“A second term for Trump would likely feature a continuation of the pro-growth policies from the first term of his administration, and importantly for financial markets, a continuation of the status quo,” says Ryan Detrick, chief market strategist for LPL Financial. “Markets don’t like uncertainty, and while Trump’s negotiating style has been unpredictable at times, his commitment to lower taxes and deregulation may provide a consistent, market-friendly policy environment.”
“A second term for Trump would likely feature a continuation of the pro-growth policies from the first term of his administration, and importantly for financial markets, a continuation of the status quo” - Ryan Detrick, chief market strategist for LPL Financial
A rally to remember
Even in the wake of the coronavirus pandemic, the US economy and markets have remained Trump’s greatest assets. His Tax Cuts and Jobs Act (TCJA) almost halved the highest rate of corporate tax and cut five of the US’s seven rates of personal income tax. This, plus a systematic programme of deregulation across the finance and energy sectors, promoted growth and bore fruit for investors.
Since his inauguration, the Dow Jones has risen 40%, the S&P 500 48% and the Nasdaq a mighty 110% — though critics will argue that Trump inherited the world’s longest-running bull market, and oversaw its fall this year.
Rise of Nasdaq since Trump's inauguration
Trump has promised more of the same in a second term, underpinned by an ambitious pledge to “create 10 million new jobs in 10 months”, along with further tax bonuses for companies that bring jobs from abroad back to the US (and penalties for those that don’t).
There’s a similarly lofty vow to “build the world’s greatest infrastructure system” with a $1trn spending plan focusing mainly on construction of roads and bridges, but also including 5G infrastructure and rural broadband.
“Trump would continue with his current policies, targeted towards market-friendly tax cuts, regulatory easing and business on-shoring,” says Kevin Boscher, CIO at Ravenscroft.
The Trump Effect on energy share prices
So, which US stocks would benefit from a Trump win? Energy stocks — particularly fossil fuels — leapt just after his victory in 2016.
Furthermore, oil, coal and gas industries were left in no doubt of the president’s support as he rescinded the Environmental Protection Agency’s Clean Power Plan, ended the Department of the Interior’s moratorium on new coal mining on public land, withdrew the US from the 195-nation Paris accord on climate change, and increased the amount of public land for lease by oil and gas companies by around 600%.
Though energy prices have plunged as consumption plummeted during the coronavirus crisis, their current low value and Trump’s continued support could make them a very good buy, according to Charles Sizemore, CFO of Dallas-based firm Sizemore Capital Management.
“Demand for fossil fuels may never come back as strongly,” Sizemore says, “but there comes a point when a stock is too cheap to ignore. As we’ve seen with tobacco stocks, industries in a gentle decline can make solid investments if bought at the right prices.”
However hard Trump tries to protect traditional fuel industries (he’s previously decried climate change as a hoax invented by China, and claimed wind turbines can give you cancer), Sizemore maintains he cannot halt the march of renewable energy.
He can still boost shares in traditional fossil fuel companies such as Exxon Mobil [XOM], though. “He would be less hostile to the sector and less likely to slap it with new taxes or regulations,” says Sizemore. "We expect a second Trump administration to look for ways to further deregulate or otherwise encourage fossil fuel production.”
“We expect a second Trump administration to look for ways to further deregulate or otherwise encourage fossil fuel production” - Charles Sizemore, CFO of Dallas-based firm Sizemore Capital Management
The best form of offence
Defence is another sector likely to do well under Trump — particularly if he escalates tensions with China and wants a show of domestic strength with racial tensions and protests continuing at home. “Defence stocks perform reliably well, due to the US serving as the world’s policeman,” Joshua Enomoto writes in InvestorPlace.
Even if the Democrats stymied Trump by winning Congress, he would probably “succeed in maintaining large defence spending, given the reality of great power struggle with China and Russia," according to BCA Research strategists.
Among the likely winners in this field are Lockheed Martin [LMT] which, among other things, manufactures the US military’s F-35 fighter jets. “Lockheed's an aerospace and defense 'blue-chip', meaning it's considered cream of the crop when it comes to the sector," according to Shah Gilani, market strategist and former hedge fund manager. "It will do better if Republicans rule Washington.”
In construction, Vulcan Materials [VMC], America’s largest producer of asphalt and ready-mixed concrete, and Martin Marietta Materials [MLM] are the stand-out stocks set to benefit from Trump’s infrastructure plans. “Both of these companies are very strong and have always done well,” says Jim Cramer of CNBC. “I cannot imagine how profitable they’d be with a trillion-dollar infrastructure package.”
“Lockheed's an aerospace and defense 'blue-chip', meaning it's considered cream of the crop when it comes to the sector. It will do better if Republicans rule Washington” - Shah Gilani, market strategist and former hedge fund manager
In finance, the president’s current economic policies mean a Republican administration will serve bank stocks well, with analysts at Keefe, Bruyette & Woods noting that "the Republican agenda of reduced regulation remains intact”, and backing Wells Fargo [WFC] and Citigroup [C] in particular.
Of course, Trump may not have to favour sectors for them to do well. He’s no fan of Silicon Valley — he says Amazon should be charged double for delivery by the US Postal Service and has blasted them, somewhat ironically given recent claims made against him, for “paying little or no taxes”. That said, tech stocks have flourished since he came to power.
At the end of last year, seven of the top 10 performing stocks during Trump’s administration were tech companies (Advanced Micro Devices [AMD] headed the pack, up 304%). The sector has also rocketed thanks to the US’s reliance on technology during the coronavirus pandemic.
With Trump’s continued commitment to deregulation and Joe Biden pledging to tighten controls on the tech industries, counterintuitively, it looks likely the Golden State’s biggest firms — and their stock prices — may have more to gain from a Trump victory.