Where to Invest in the Trump Era

Where to Invest in the Trump Era

Donald Trump is president, like it or not. And with a new administration comes changes in policy that will affect your portfolio. Some Trump policy changes and key Cabinet appointments came quickly, and their impact on financial markets has already started taking hold. In other areas, we have little more than general comments from the administration to indicate policy direction.

Whatever you may think about the changes, it’s a good time to assess the investment risks and opportunities — which sectors are likely to surge, and which might flounder — under the Trump administration. Here are eight worth examining:

1. Infrastructure opportunities brewing

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Possibly one of the most obvious bets is in construction companies. Pipelines and giant walls are just two of the sorts of projects Trump has advocated during his first weeks in office. As a candidate, he also promised a $1 trillion infrastructure plan to rebuild many of the nation’s roads and bridges.

If he can convince Congress to pay for it all, there could be lots of money flowing to construction companies over the next few years. Industrial equipment maker Caterpillar could see some of this cash come their way to purchase the backhoes and bulldozers required for big projects. Cemex, a Mexican company that makes concrete and cement, could also do well.

The possibilities go beyond bridges and roads; there may also be major improvements and expansions to the nation’s communication networks and power infrastructure — a potential boon for companies that make and install things like power lines and fiber optic cables.

2. Energy industry shifts

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Companies that mine uranium and run nuclear power plants are excited by the prospects under the Trump administration, owing to comments that suggest he’s pro-nuclear. Professionals urge care in investing in the industry, since it is quite volatile.

Oil and gas companies have also rallied, since Trump seems to be a friend to companies that pull carbon out of the ground. One strong indication was his appointment of Rex Tillerson, the former CEO of ExxonMobil, to be his secretary of state.

Trump often talks about revitalizing coal — in part by removing environmental regulations to rev up the industry — but problems with coal go beyond those regulations and are unlikely to be solved by the president. For one thing, plentiful natural gas has supplanted coal as the fuel of choice for utilities and other big users.

Trump’s comments also signal renewable energy may become a loser. If his policies lower gas and oil prices, people won’t be as quick to switch to environmentally friendly energy sources like solar. Additionally, federal subsidies for these industries may dry up.

While you can always buy shares in large companies like ExxonMobil or BP, it might be safer to look for a fund you like that trades in the sector. Check out this story for ideas.

3. Financial sector buoyant

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While running for office, Trump said he wanted to do away with the “carried interest deduction” — a tax break for select investors, like hedge fund managers.

But the industry and many investors are optimistic about his plans to cut many of the regulations imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which were put in place in the wake of the 2008 financial crisis. Throw in the possible elimination of the Consumer Financial Protection Bureau, and it could mean looser regulations and bigger profits for banks and other financial service companies. Following Trump’s inauguration, shares in the biggest banks surged. This includes heavy-hitters like Morgan Stanley, Wells Fargo, Citigroup, Goldman Sachs and Bank of America. By all indications, some experts say, the trend will continue.

Additionally, if changes to tax policy allow the repatriation of the billions of dollars multinational companies currently are holding offshore, that could spark a wave of mergers, acquisitions and stock buybacks. In addition to the companies holding the offshore cash, like Apple and GE, the companies that help facilitate these transactions could do well. Goldman Sachs, Morgan Stanley and other Wall Street big dogs will again be beneficiaries.

4. Health care turmoil

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The Republican Party in control of Congress is in the throes of revising the Affordable Care Act or “repair” the ACA, also called Obamacare. Until plans firm up, the sector will experience turmoil. The unpredictable nature of the sector makes it a risky investment.

Trump’s comments about the big pharmaceutical companies “getting away with murder” clobbered prices in the sector in mid-January, though most rebounded after he met with pharmaceutical executives behind closed doors several days later. The president’s stance on drug pricing is now unclear, but some experts are bullish on drug companies. They point to multinationals like Pfizer or Novartis as companies likely to churn steady profits during the Trump administration.

5. Insurance expansion?

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Trump wants to let insurance companies sell their products across state lines — health insurance in particular. How that would impact Americans’ access to health coverage remains to be seen, but the impact on insurers’ bottom lines will probably be positive.

In addition, insurers are expecting to see higher yields, according to Financial Times (subscription wall). If you are interested in the industry, but not confident about choosing specific companies from among the big names (MetLife, Prudential Financial, et al.) consider investing in insurance sector funds.

6. Bullish on defense

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Trump has claimed the U.S. military has been depleted. Though many experts disagree, a Republican Congress is often friendly toward increased defense spending.

Some who study defense note there have been some mixed messages. Trump wants increases in defense spending, but he’s also taken to Twitter to complain about the cost of some projects such as the F-35 and Air Force One. On balance, analysts still expect the defense industry to do well in GOP-dominated Washington. If Trump follows through with plans to increase defense spending, that’s obviously good news for companies that make planes, ships, tanks and other equipment — such as Northrup Grumman, Lockheed Martin, Boeing, Raytheon and General Dynamics — as well as thousands of smaller companies that provide parts and services to those giants.

7. Caution: importers and exporters

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Yes, “importers and exporters” covers practically every major company, due to the emergence of global supply chains. Trump’s plans to rip up trade deals and impose high import tariffs create tremendous uncertainty for both. If he can actually get better deals through trade negotiations, there might be a net positive for the economy. But if the proposed Border Adjustment Tax turns into reality, the first casualties would be U.S. importers because it will make the goods they are bringing in more expensive. (Some economists have argued that such a tax could hurt the overall economy.) Secondarily, the shift in trade practices could spark retaliation by foreign governments against U.S. goods — thus harming American exporters.

8. Tech uncertainty

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According to Code.org, there are more than 527,000 computing jobs open nationwide but fewer than 43,000 people last year who earned computer science degrees. Trump’s moves to curtail immigration and potentially shrink the H-1B visa program (which allows the temporary hiring of foreign workers in specialty occupations) could hurt tech companies’ ability to hire enough workers. Add to that the fact that tech companies are big exporters, and these could be tough times for the sector. While some might get a short-term boost if companies are allowed to repatriate overseas holdings, most experts agree that positive will be outweighed by the negatives.

What industries do you think investors should watch? Let us know in the comments below or on our Facebook page.

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