Watching the way Wall Street index tickers have raced to fresh record highs on both Monday and Tuesday, investors might be forgiven for thinking that pretty much any stock is doing well on the so-called “Trump Trade”, coined in the wake of Donald Trump’s presidential election victory earlier this month.
Since the close of November 8, when polling was still underway, and after two sessions of gains when the FBI cleared Trump’s rival Hillary Clinton of any further emails investigation which markets thought would embed her prospects of winning the White House, the Dow Jones Industrial Average has actually risen more sharply and the advance totals 662 points, or 3.6% to date.
On Tuesday, the Dow exceeded 19,000 for the first time ever and hit an intraday high record of 19,014.
Even the broader-based S&P 500 index has added 60 points or 2.8% to date while the tech-heavy Nasdaq Composite, supposedly licking wounds from how unfavourably Trump might deal with new economy has his policies apparently favour old economy, has burgeoned by 183 points or 3.5%. The Nasdaq has also marked a record high on Tuesday at 5,392.
But while after the election result was known there was much speculation on which sectors of the economy would do well under Trump – such as infrastructure sector, firearms and pharmaceuticals – that is pretty much as far as brokers have progressed so far.
What is more, despite courageous attempts by brokers to continue “business as usual” to issue notes on stocks they cover, all of these notes are at best questionable as we don’t yet know what Trump will do – or what the Republican-dominated Congress will stomach from his often at-odds reflationary policy proclamations. Besides, what he said to get elected is another thing, as is the illusion some investors hold that just because Trump carries the Republican badge he business-friendly policies will become enacted without challenge.
So what stocks will stand the test of time in four years? What can investors buy now that will last Trump’s first four-year term?
Given the trepidation of brokers the answer to that may be “search me”.
Investors are betting Trump will get a stimulus package passed that will help rebuild much of the nation's infrastructure. That's why stocks like Caterpillar (NYSE:CAT) and US Steel (NYSE:X) have surged since the election. Caterpillar has gained 10.2% while US Steel has rocketed 51.7%.
The market is also betting that Trump may roll back some of the provisions of two signature laws passed during the Obama administration -- the Affordable Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Drugmakers Merck (NYSE:MRK) and Pfizer (NYSE:PFE) have rallied on hopes that the Trump administration won't focus so much on reining in the price of medications as Clinton might have done. This could also be good news for health insurers, investors think, although insurers would prefer to see medication priced more cheaply if they are included in the policy coverage.
So far, Merck shares are up 1.6% and Pfizer up 4.1%. Ok, the gains are not in the same league as US Steel or even Caterpillar but they are healthy index-beating gains, at least for Pfizer.
And Wall Street banks JPMorgan Chase (NYSE:JPM), up 11.7%, and Goldman Sachs (NYSE:GS), up 16.3%, have jumped on expectations that Trump will be more lenient to financial firms.
Retailers and other consumer stocks could do well. Investors are betting that economic stimulus combined with the possibility of lower taxes could put more cash in the pockets of average Americans.
One broker who has tried to enumerate where things are going – even if it is still all debatable until Trump is inaugurated on January 20 - is RBC. The analysts there put out a report on Monday that highlighted 40 large stocks that could thrive for the next four years.
Perhaps predictably the list was dominated by banks, retailers and healthcare companies and included well-known firms like US Bancorp (NYSE:USB), Capital One (NYSE:COF), Kohl's (NYSE:KSS), Best Buy (NYSE:BBY), Aetna (NYSE:AET) and Anthem (NYSE:ANTX). US Bancorp shares have advanced 8.75%, Capital One is up 13.6%, Kohl’s up 26.78%, Best Buy up 22.6%, and insurer Aetna up 13.9%.
But as market activity has shown since November 8, it is not only the top-line US stocks that have thrived in the past two weeks.
US mid- and small-cap firms have also posted record highs. That’s the S&P 400, S&P 600 and Russell 2000. The Russell 2000 has advanced by 11.2% since Trump was declared the election winner.
Investors are betting that Trump's efforts to bolster the US economy will be great for smaller companies, which tend to have less exposure overseas and who might actually benefit even more than larger stocks because they carry less legacy than big established enterprises and so are more nimble and able to adapt faster.
Our friends at the Canadian bank RBC have not forgotten us. On Tuesday they issued another report that featured 40 smaller and mid-sized companies that could do well during a Trump administration.
That portfolio was also dominated by financials, retailers and healthcare. Big Lots (NYSE:BIG), Rent-A-Center (NASDAQ:RCII), PharMerica (NYSE:PMC) and Genworth Financial (NYSE:GNW) were among the companies making the cut. Big Lots was up 18.6%, Rent-A-Center up 16.6%, PharMerica up 13.9%, and Genworth up 6.9%.
What is impressive is that there is now a haul of around 80 stocks that a venerable bank like RBC is staking its reputation on to do well. And that means a tidy diversified, workable portfolio for a fund manager to track. No doubt someone reading this will coin the term a “Trump Tracker” for passive funds that will follow a perceived formula such as that laid out by RBC.
But on the flipside, the stocks named are all in the areas that we expect to do well. And as already argued, we simply don’t know how much of Trump’s pledges can even be fulfilled.