Recently, the "Trump Trade" has returned to the spotlight, with Trump Media & Technology Group's stock price doubling since late September. Today, we'll explore investment opportunities under the expectation of a Trump victory.
1. Beneficiary Asset Analysis
According to 270toWin, as of October 15, Trump leads in 6 out of 7 swing states, suggesting a potential return to the White House. While Trump Media & Technology Group Corp.(DJT.US) is obviously the biggest beneficiary, its dramatic rise has reduced the risk-reward ratio, necessitating exploration of other opportunities. Trump's consistent policies—increased tariffs, immigration control, and tax cuts—typically lead to lower supply and higher demand, resulting in increased inflation. Traditional energy companies and bank stocks tend to benefit under these conditions and warrant attention.
The 2016 data confirms these observations. In Q4 2016, banks and financial stocks rose over 10%, while energy stocks increased nearly 7%, making them the best-performing sectors in the U.S. stock market that quarter.
Additionally, inflation-sensitive companies, represented by Consumer Discret Select Sector SPDR(XLY.US) consumer stocks, stand to benefit. Note that Trump's negative stance toward renewable energy has already triggered selling in these sectors over recent weeks, and we recommend temporary avoidance.
2. Trading Analysis
A similar "Trump Trade" occurred in June this year, with energy, manufacturing, and financial sectors showing strength, aligning with our analysis. While tech stocks, represented by the NASDAQ, declined then, the current situation might differ due to tech's strong fundamentals. Market data shows the Fed expects 128 basis points of rate cuts by next September, potentially supporting tech valuations. The biotech sector, represented by Spdr Series Trust Spdr S&P Biotech ETF(XBI.US) is highly rate-sensitive because new drug development requires substantial capital investment. Lower rates facilitate financing activities and improve biotech companies' performance, making this sector worth watching.
3. Risk Warning
Additionally, caution is advised for stocks with high U.S. export exposure. Trump's likely implementation of tariffs on foreign goods would significantly impact these companies' revenues, potentially weakening their stock prices.
Finally, one of the stock market's fundamental principles is "buy the rumor, sell the news." The optimal time to buy is when market expectations are forming, not when events actually occur. By the time Trump actually wins the election, many investors will be taking profits and exiting positions. Therefore, waiting until Trump's actual victory to trade would be too late-that would actually be the time to sell.
