HomeBusinessWith Trump's victory boosting stocks, investors are looking for the next winners

With Trump’s victory boosting stocks, investors are looking for the next winners

(Bloomberg) — For investors looking beyond the initial risk-on rally in U.S. stocks after Donald Trump’s decisive election victory, now comes the hard part.

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The Republican president-elect has made numerous campaign promises: high tariffs, tax cuts, business-friendly deregulation and stricter immigration laws, to name a few. For investors who piled into stocks last week on speculation that Trump’s policies will strengthen the economy, the challenge is figuring out which sectors will get a lasting boost.

For example, tariffs could fuel inflation and hurt large multinationals, while potentially helping domestic small-cap stocks. However, the crackdown on immigration threatens to increase labor costs, likely putting pressure on smaller businesses. Meanwhile, a friendly attitude toward traditional energy that boosts production could push oil prices lower, and efforts to repeal President Joe Biden’s policies aimed at helping the clean energy and electric car industries may struggle to pass Congress .

“I expect active investors will start using a scalpel to dig through at the sector level to see which companies and sectors can benefit now,” said Eric Clark, portfolio manager at Accuvest Global Advisors. “Over time we will get more data points on what will actually be implemented and how we can play that out.”

Clark has already taken advantage of a number of opportunities. While banks, industrials, energy and big technology stocks pushed the stock market higher on Wednesday, he sold off some technology and financial stocks. He also bought stocks in luxury retail and consumer goods, which were in the red during the surge.

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Small-cap stocks rose last week and appear to be in a good position as traders assess the potential policy backdrop. These companies, which earn most of their revenues domestically, will benefit from increased protectionism. A possible corporate tax cut should also help.

Trump has proposed a blanket tariff of 10 to 20 percent on imports, and as much as 60 percent on goods made in China. The prospect that at least some tariffs will materialize helped propel the Russell 2000 Index – a benchmark for small-cap stocks – soaring 8.6% last week. Digital payments company Sezzle Inc., one of the biggest gainers on the meter, doubled in that time.

Financial stocks are also seen as strong, given Trump’s promise to make changes to regulators that have pursued stricter banking rules under Biden. As banking analyst Mike Mayo of Wells Fargo & Co. sees, a new era of deregulation could boost Wall Street profitability. The shares of Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. soared after Trump’s victory.

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