Changes in the White House, and for your portfolio.
Change always presents opportunities for those who are prepared, especially when it comes to investing. And post-election markets are always rife with opportunities, as each president will try to take actions to fulfill his campaign promises. We can’t predict the markets, but sometimes presidents give us a roadmap of the areas they expect to infuse with growth. Here are a few possible growth areas that may to be in alignment with President-elect Donald Trump’s platform.
Infrastructure.
Trump has said “we will build the greatest infrastructure on the planet Earth,” and many of our bridges and roads are in dire need of repair. In fact, the latest report from the American Society of Civil Engineers called for at least $3.6 trillion in repairs by 2020, and infrastructure work could create jobs. Considering Trump’s focus on the wall between the U.S. and Mexico, “investors will want to focus on a company that builds earth-moving vehicles, rather than guess what company might get the main contract,” says Mitch Zacks, president of Zacks Investment Management. “Investors will look to Caterpillar (ticker: CAT), the world’s largest manufacturer of construction equipment.”
Finance.
If Trump dissolves the regulatory Dodd-Frank, which was put into law after the Great Recession to regulate the banks sector, “it would be time to go long the Financial Select Sector ETF (XLF), or more specifically JPMorgan & Chase (JPM),” Zacks says. Wells Fargo upgraded financials to “overweight” based on expectations for some policy easing, says Sameer Samana, global quantitative strategist for its Investment Institute. Bank and insurance company earnings may benefit from the rise in short-term yields and a steeper yield curve, she says, and the pickup in M&A and trading activity has been a boon to capital markets and investment banks.
Energy.
When choosing energy stocks, Zacks says to avoid currency conflicts. “Buying anything fossil fuel-related should work, but the SPDR Energy ETF (XLE) would be the best bet,” he says. “Rather than picking a larger company, a small cap might be a better bet due to potential currency wars. Gulfport Energy (GPOR) will give investors the oil and gas exposure while offering growth opportunities that will come with Trump policies.”
Invest wisely in 2017 and 2018.
Equity returns are usually lower in the first two years of a president’s term. “Historically, the first half of presidential administrations have seen lower returns than in the second half of presidential administrations,” says Robert R. Johnson, president and CEO of The American College of Financial Services. “The returns in years one and two of a president’s term are [typically] less than the returns in years three and four. This is commonly referred to as the presidential election cycle.”
Rising rates.
Another thing to consider is that interest rates will likely rise, which means slower growth for the Standard & Poor’s 500 index, Johnson says. Rates often correlate positive economic news –unemployment is 4.9 percent, fourth-quarter GDP growth is expected at 3.6 percent annualized, and there’s been an uptick in existing home sales. From 1966 through 2013 during a falling rate environment, the S&P 500 returned 15.2 percent, but only 5.9 percent when rates were rising. “Specific industries likely to perform well under a Trump administration are banks, coal, natural gas and oil, and pharmaceutical firms,” Johnson says.
Diversify globally.
The Republican sweep of House and Senate is typically a good combination for U.S. large company stocks, says Tracie McMillion, head of Global Asset Allocation at Wells Fargo Investment Institute. But geopolitical events and uncertainties, particularly surrounding trade and regulatory policies, could inject volatility into U.S. markets in 2017. “To mitigate the risk of market downturns, investors should continue to hold a globally diversified portfolio including cash alternatives, fixed income, equities, real assets and alternative investments,” she says.
Pharmaceutical companies.
“Sectors we are currently focusing on for opportunities are the health care/biotech/pharma, energy, financials, defense, and the industrials/infrastructure sectors,” says Dustin Giannangelo, managing partner at Fusion Wealth Management. “Trump has stated his desire to repeal the Affordable Care Act and has favored drug re-importation from other countries. Controlling drug prices are unlikely to be as high of a priority for him. Thus, biotech and pharmaceutical companies received a bump like we saw post-election.”
Defense.
Trump has talked repeatedly about building the military, Giannangelo says. “We have already seen a surge in this industry and believe there is a great opportunity but also a lot of risk from an entry point. Yes, there will be contracts awarded, but the key here is to see how long the fiscal policy will take to pass, even with a fully controlled Republican House and Senate.”
A golden opportunity.
Vic Sperandeo, president and CEO of EAM Partners, says the estimates for future inflation are “way too low,” and gold will perform well even in a higher interest-rate environment. “For investors, these factors indicate volatility in the near term,” he says. “In considering the current market environment, diversification is key, and investors should consider modifying their traditional 60/40 portfolios with non-correlated assets, including managed futures.”
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9 Ways to Invest in a Post-Election Market originally appeared on usnews.com
