Investors are already positioning themselves for a potential return of Donald Trump to the White House. Sectors like energy, industrials, financials, and crypto are seeing gains, while solar and clean-energy stocks are struggling.
Trump’s previous term caused significant market fluctuations, and his recent suggestion that Taiwan should pay for U.S. protection has stirred turmoil in the tech sector. It’s premature to fully realign your portfolio for a possible Trump administration, as he leads in polls, but a Democratic comeback is still possible with President Joe Biden or another candidate.
Even if Trump wins, the impact of his policy changes remains uncertain and will depend heavily on Congressional control. Major policy shifts in the past 15 years occurred when one party controlled both chambers and the White House. Without a Republican sweep, Democrats can obstruct Trump’s agenda on tax cuts, tariffs, and more.
Investment strategies should consider whether you’re trading on the election or making long-term bets. For election trading, financials and traditional energy might see the most gains, with potential benefits for cryptocurrencies. However, sector bets may not be reliable long-term as economic factors and corporate actions will eventually outweigh policy changes.
Energy’s Tug of War
“Drill baby drill” is part of the 2024 Republican platform, but its impact may be limited. During Trump’s first term, the energy sector underperformed, declining 30% in total return, partly due to Covid and low oil prices. Under Biden, the sector has rebounded with a 148% return, despite his promotion of green energy policies.
Increased domestic production might not benefit the industry as much as expected. More production could depress oil and gas prices in an already saturated market. Additionally, ending the war in Ukraine, a Trump goal, could further lower prices by bringing more Russian gas to the market.
Nonetheless, certain energy investments could be favorable under Trump. Supermajors like Exxon Mobil, which have become more efficient through mergers, may benefit. Trump is likely to delay the transition to renewables, supporting longer demand for oil and gas.
Exxon Mobil and Halliburton could gain, according to Evercore ISI analysts, along with natural-gas companies like EQT, which could benefit if Trump lifts a pause on new LNG terminals. Companies involved in LNG, such as Cheniere Energy and Sempra, and pipeline firms like Kinder Morgan and Williams Cos., might also see gains.
Clean energy could face challenges. Trump has indicated he would repeal subsidies for clean energy and EVs, but many of these subsidies have spurred new manufacturing in Republican districts, complicating repeal efforts. Even if subsidies are cut, actions through executive orders and rule changes could slow the adoption of clean energy technologies.
Solar stocks have struggled recently, with Vistra, a utility reliant on wind power, down over 10% in July. Repealing clean energy subsidies could harm companies like Rivian Automotive, which has seen declines as Trump’s poll numbers rise. Industrial firms connected to clean energy, such as Lincoln Electric Holdings and Illinois Tool Works, could also be negatively impacted.
Financial Sector Dynamics
Deregulation could benefit the financial sector. The largest banks and financial firms would welcome a rollback of stricter capital requirements. Project 2025, a conservative agenda, calls for integrating Finra into the SEC, reducing oversight.
Economic growth under Trump could boost lending activity, benefiting the financial sector. However, Republican policies on taxes and trade could reignite inflation, complicating the Federal Reserve’s plans to cut rates. Wall Street hopes for a surge in mergers and acquisitions, generating fees for investment banks like JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Citigroup. Rich Nuzum of Mercer sees higher deal activity under Trump.
A potential obstacle is Trump’s vice presidential pick, JD Vance, who supports antitrust efforts similar to those of Biden’s FTC chair, Lina Khan. Large-scale deals may face challenges regardless of who wins.
Cryptocurrency Prospects
Trump has shifted from calling Bitcoin a “scam” to supporting cryptocurrency protections in the Republican platform. He has received campaign donations in crypto, primarily Bitcoin and Ether. Republicans might be more open to crypto products and services, ending SEC Chair Gary Gensler’s hostility.
Bitcoin and Coinbase Global could benefit, along with fund companies backing Bitcoin ETFs like BlackRock. However, the legal status of crypto transactions will likely be settled by the courts, a process that could take years. Advisors recommend limited crypto exposure in diversified portfolios, about 5% to 10%.
Tech Sector Challenges
Big Tech faces trade and regulatory hurdles regardless of the election outcome. A deeper trade war with China and Trump’s comments on Taiwan add instability. Biden might also increase restrictions on chip exports to China, affecting the tech sector.
JD Vance, with ties to the tech industry, supports actions against companies like Alphabet and Meta Platforms. This creates uncertainty for Big Tech, despite some relief from GOP pressures.
The primary reason to invest in tech is artificial intelligence. Semiconductor companies currently benefit the most, but as AI becomes more integrated into devices and software, tech giants like Apple, Microsoft, and Alphabet could see significant gains.
Investors should avoid drastic portfolio changes based on politics. A Democratic win would likely maintain the status quo, which has supported a healthy market near all-time highs. Historically, a 60/40 stock-bond portfolio performs similarly under Republican and Democratic presidents, with annual returns of 8.1% and 7.7%, respectively.
Better market performance tends to coincide with unified government control. Since 1928, average annual returns for the S&P 500 index have been roughly 9% under unified control versus 6% under divided government.
For those seeking stability, gold remains a strong option. It has hit record highs, driven by geopolitical instability and inflation concerns. J.P. Morgan strategists highlight gold’s bullish prospects amid worries about debt, trade, and “America First” policies.
Given the unpredictability of Trumpian politics, having gold as part of your portfolio might be a prudent choice.
