Stocks & Sectors Predicted to Flourish under Trump Era
Key Takeaways
BBC has recently coined the term Trump trade winners in an article predicting which stocks or sectors will be particularly successful under the new president’s tenure.
Many may not remember, but the same levels of anticipation (and predictions of the market) were felt the last time Trump won in 2016 — spoiler alert, none came to pass.
It can be tempting to believe in thematic trends based on the most recent buzz, but even if themes seem logical, remember that the market has and will continue to surprise us.
After being deluged by what must be the 100th report on what the recent US elections mean for markets over the next few years, we have come to two broad conclusions — markets will go up, and markets will go down (see diagram below for the varied headlines).
If you were looking for some definitive market direction to take, we apologise as we have none to give. Whenever events occur, we always want to remind ourselves that we should not believe that we know what will come next, because the truth is that we have absolutely no clue.
Even if you had predicted the winner of the election — the polls were indicating that it was going to be Harris but betting markets were indicating Trump — you cannot say with certainty what the longer-term market and economic consequences of it will be.
The current favourite investor activity at the moment is to analyse the immediate financial market reaction, to glean insights as to what lies ahead in the coming months and years. The current “Trump trades” (as coined by BBC) are;
Tesla Shares
Cryptocurrencies
Financial Sector Stocks
US Dollar
Energy Stocks
Prison Operators
Looking back to what happened at Trump’s 2016 victory provides some context to what to expect. In the five months following his win, the US dollar, energy stocks, financial stocks and CoreCivic (a private prison operator) rose in anticipation of his policies.
The US Market in 2016 Trump Anticipation
By the time Trump ended his term in office, only financials were positive with everything else negative. Even then, financials underperformed the benchmark (using the S&P 500 in green as a proxy).
The US Market in 2020 Post-Trump Presidency
What lessons can be learnt?
Why did these “obvious” signs and trades not work out well? There are a few reasons that we should always keep in mind when taking confident views about markets — especially if it is from a narrow perspective (considering a single factor, the presidency).
Nobody Can Predict the Future
We can’t stress this enough. We can theorise and surmise, but in the end, we have no idea what the new administration will do, let alone know how markets will react in the future.
Nobody Can Control the Market
The fact that there are 3.5 billion trades on global stock markets on a daily basis, it is pompous to suggest that Trump has any control over the decisions of all these investors from around the world.
Everyone Has A Different Opinion
Even if we read the same piece of news, our analysis and conclusion will be different. Research shows that investors who support a certain political party feel positive and allocate differently when their party is in power. Vice versa, if investors preferred party is not in power they feel more pessimistic in both their view of the economy and stock market.
When we face uncertainty, a human bias is to crave some explanation to better understand its outcomes. When looking at markets, which is an inherently complex environment, all explanations will fall short. When you throw in the wide views of the world and the interactions between all the participants, it becomes an impossible task.
So don’t go chasing after some of these themes even if it sounds logical. The investment plan that you created together with your advisor has a lot of thought and consideration put into it, and the underlying philosophy is built to outlast these short-term themes.
