President-elect Donald Trump’s policy agenda carries risks and rewards for different investment sectors, market experts said. Republican control of both chambers of Congress may grant Trump greater leeway to enact his pledges. However, their scope and timing remain far from clear.
“There’s so much uncertainty right now,” said Jeremy Goldberg, a certified financial planner, portfolio manager, and research analyst. “I wouldn’t be making large bets one way or another.”
Past market results show why it’s difficult to predict the sectors that may win or lose under a new president, according to Larry Adam, chief investment officer at Raymond James. When Trump was elected in 2016, financials, industrials, and energy outperformed the S&P 500 in the first week.
However, for the remaining three years and 51 weeks, those same sectors significantly underperformed. “The market is known to have these knee-jerk reactions trying to anticipate where things go very quickly, but they don’t necessarily last,” Adam said. What’s more, sectors that are expected to do well or badly based on a president’s policies have sometimes gone the opposite way, according to Adam.
For example, the energy sector was down by 8.4% during Trump’s first administration, despite deregulation, record oil production, and a rise in oil prices. Yet the energy sector climbed 22.9% under Biden as of Nov. 19, despite the administration’s push for renewables and sustainability.
The auto sector will likely be a mixed bag. Trump’s antipathy for electric vehicles is likely to create headwinds for EV producers. His administration may try to roll back regulations aimed at broader adoption of EVs and hybrids.
This includes potential cuts to consumer EV tax credits worth up to $7,500. Losing the federal credit would make EVs more costly, driving down sales and making “per unit economics even less favorable” for automakers, wrote John Murphy, a research analyst at Bank of America Securities.
Trump’s agenda impacts investment sectors
Tariffs and trade conflicts pose threats to the auto industry, as the U.S. relies on other nations to manufacture cars and parts, said Callie Cox, chief market strategist at Ritholtz Wealth Management. Higher borrowing costs may weigh on consumers’ desire or ability to buy cars, Cox added. However, lower EV production could benefit companies that manufacture traditional gasoline cars.
Trump’s “drill, baby, drill” approach to oil production could reduce gas prices, supporting demand for gas vehicles. But trade wars and sanctions on Iran and Venezuela could mitigate these effects. Trump’s first administration eased certain regulations for banking rules, and his second term is expected to usher in lighter financial regulations.
This may bolster profitability in the sector, said Brian Spinelli, co-chief investment officer at Halbert Hargrove. “The larger banks probably benefit more from that,” Spinelli said. Less regulation, combined with the prospect that interest rates could stay higher, will provide a net positive for the bank industry since banks may be able to lend out more risk-based capital.
The building materials and construction sector has been “frozen” in recent years by high mortgage rates, said Cox of Ritholtz. Lower rates would likely be a “catalyst” for housing and associated companies. However, that may not materialize quickly under Trump.
If policies such as tariffs, tax cuts, and mass deportations come into play, the Federal Reserve may have to keep interest rates higher for longer, which would likely prop up mortgage rates and weigh on housing and related sectors. The whims of the housing market affect retailers: home goods stores may not fare well if people aren’t buying, renovating, and decorating new homes. Deregulation could be “absolutely huge” for the sector if it accelerates building timelines and reduces costs for developers, Goldberg said.
Opening public land to builders and creating tax incentives for homebuyers could provide additional support. In conclusion, Trump’s policies carry significant weight for various sectors, albeit with a mix of potential risks and rewards. Investors should remain cautious and consider the broader economic environment when making decisions.
