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Trumpiversary: Here Are the Winners & Losers

Zacks

Before President Trump’s election, many pundits found it difficult to assess the outcome of his victory as his proposals seemed contradictory or lacked details. On the contrary, such pro-economic policies helped technology and financial stocks rise sharply, helping Wall Street’s major equity indicators showing the best rally in the past 81 years.

Defense stocks have, in fact, left the rest in the dust. The sector gained the most following tensions between Trump and North Korea. Trump’s Afghanistan strategy has also lent such stocks a fillip. However, not everyone has partaken in this year-long rally. Let us thus take a look at the potential gainers and losers of the ‘Trump trade’.

Trump Rally Fed Off Wall Street Anxiety

It’s been a year since Trump’s stunning performance on election night that had rattled the global equity market. The Dow futures tumbled nearly 900 points as investors remained concerned about Trump’s questionable campaign promises on trade and immigration.


But, investors’ apprehensions ebbed by morning and U.S. stocks started moving north. In fact, the Dow’s 1-year gain since Trump’s win turned out to be the highest post-Election Day rise since 1945. The blue-chip gauge surged 28.5% since Nov 8, 2016.

The S&P 500 also rallied 21% since the close of trading on Election Day 2016. This is the benchmark index’s third best performance during a President’s first election since World War II, lagging that of Presidents John F Kennedy (1960, 29%) and George H. W. Bush (1988, 23%), as per Sam Stovall of CFRA Research.

Though Trump had taken over a progressing economy with the stock market near an all-time high, his pro-growth and business-friendly policies as well as bets on deregulation gave investors ample scope.

Technology and Financials Benefit From Trump Policy

Promises of pro-business legislation by Trump have primarily supported the gains for the software industry and the manufacturers of the internal technologies — the semiconductor makers. The House’s latest corporate tax plan will lower taxes from 35% to 20%. As a result, tech companies’ after-tax earnings will improve and lead to repatriation of trillions of dollars held abroad by such companies. Tech companies can use this extra cash for research and developments, and mergers and acquisitions.

If the bill turns into a law, tech bigwigs including Apple Inc. AAPL and Microsoft Corporation MSFT as well as semiconductor giant NVIDIA Corporation NVDA will largely benefit as they have billions of dollars stashed outside the United States. In fact, NVIDIA – Zacks Rank #2 (Buy) stock – became the biggest gainer since the election, up a staggering 209%. Looking at the big picture, the technology sector is up around 39%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Financials, in the meantime, has benefitted from the possibility of deregulating the sector. At the same time, Trump appointed Jerome Powell as the next Federal Reserve chairman, someone who favors his regulatory changes.

Trump views the Dodd-Frank regulatory overhaul as a harsh measure, especially, on smaller banks. Trump has called for repealing parts of the Dodd-Frank Act, which has for a considerable period of time limited operational flexibility. Trump’s administration also aims at increasing the minimum asset threshold for banking behemoths, which will lend more flexibility, boost valuations, strengthen consolidation and increase lending. The value of stock and options held by Jamie Dimon, the CEO of JPMorgan Chase & Co., turned out to be the highest since Trump’s win, while the broader financial sector soared almost 35% in the said period.

Defense Stocks – By Far the Best Trade

Aerospace and the defense sector has been the best trade since Trump’s election. While deal making activity boosted the sector, Trump’s unrelenting war of words against Pyongyang provided enough impetus to the sector to climb further north.

Let us also not forget that Trump revealed a reversal of strategy in Afghanistan, promising to “fight to win” instead of withdrawing entirely. He vowed to ramp up U.S. engagement in Afghanistan, the country’s longest war to date. He added that moving troops away from Afghanistan would create a “vacuum,” which terrorists would “instantly fill.”

Kratos Defense & Security Solutions, Inc. KTOS, AeroVironment, Inc. AVAV and Aerojet Rocketdyne Holdings, Inc. AJRD have been the best-performing components in the defense sector, with their stock value doubling since Trump’s victory.

Aerospace company Boeing Co gained the maximum at 87% since the election. Trump’s pledge to significantly increase federal spending related to national security was cheered by Republicans and helped defense and aerospace stocks scale higher. He had promised to seek a $54-billion hike in spending on tanks, ships and weapon systems. The defense budget will climb 10%, according to the White House, while Trump recommended $30 billion in supplementary military spending for this year.

Which Sectors Are Not So Lucky?

Not everyone, though, has participated in the year-long rally. The three worst performing sectors since Trump’s election have been consumer staples, energy and telecommunication services. While staples and energy managed to eke out marginal gains, telecommunications tanked nearly 10%.

While volatility in oil prices during Trump’s regime made investors cautious from investing in the energy sector, staples and telecommunications were affected due to higher interest rates. The Federal Reserve has lifted rates twice this year and is expected to raise it again next month.

Retailers too have been affected during Trump’s regime, as they continue to adapt to changing consumer tastes and preferences as well as evolving shopping methods. Notably, Macy's Inc M was among the biggest losers since the election, down 52.3%. Currently, the omnichannel retail company has a Zacks Rank #4 (Sell).

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