While domestic stock volume has been quite heavy since Donald Trump surprised us all with a Presidential victory over Hillary Clinton early Wednesday morning, so far traders seem unconvinced what his administration might actually mean for the global economy. Despite the tumbling of domestic index futures and international markets as Trump’s win became more certain overnight Tuesday, the S&P 500 has actually moved a percent higher over the past two trading sessions. Dow Jones Industrials has surged ahead even more.
Further, 10-year Treasury yield surpassed the 2% threshold for the first time in nine months, as bond traders seem to be sensing a more robust economy and hawkish Fed with inclusion of Trump initiatives.
With most media outlets and pre-election polls predicting a comfortable popular vote victory for Hillary Clinton, stock investors were obviously spooked by the unexpected turn of events. However, given the stability of the market late in the week, it’s becoming clear that Trump’s win is being viewed, at least for now, with a touch of cautious optimism by investors.
Trump Rally Winners & Losers So Far
With the perk-up in rates, banks, insurance companies, and other stocks that might benefit from an increasing spread have seen significant rally late this week. Retailers also seem to be benefiting, with a view towards an uptick in economic activity.
Fossil fuel stocks — coal, natural gas, and petroleum — have seen buy interest as well, with Republican administrations seen as generally lenient on regulatory oversight. On the flip side, green energy stocks have taking a mild drubbing, as Trump has been openly critical of costs involved in solar, wind and other emerging energy fields.
On the flip side, your typically defensive-type stocks — food, consumer non-durables, and the like — which have been bid-up especially high as of late due to general economic jitters have seen selling.
You’re also seeing concern with how trade deal alterations could potentially impact multinational companies deriving substantial revenue outside the states. On the more optimistic side, Trump has said that cash repatriation law must be relaxed, which would allow companies to bring back cash earned abroad, without egregious taxation.
More generally, high-yield and rate sensitive stocks that move in tandem with bonds, especially REITs, which had already been sold off intensely prior to the election, have also been trending lower. If Treasuries continue to bounce higher, that will undoubtably continue.
While it is clearly too early to know how things will shake out economically-speaking over the next four years, investors obviously aren’t as worried as those that have taken to the streets to protest Trump’s election. The stagnation/decline in middle-class America, rising healthcare costs/failure of Obamacare, and other Main Street issues have seemed to cause a revolt of sorts that most politicos have failed to address, nor maybe even understand.
Most viewed Secretary Clinton as a “safe” choice that would likely not have backed any radical policy shifts, either domestically or abroad. The vote on Tuesday evinces the fact that Americans are frustrated with the status quo, and are willing to shoulder the obvious risk of a political outsider who seems willing to revamp policy in order to improve the domestic economy.
For the average investor, however, I’m not sure that one needs to make cataclysmic portfolio adjustments. I’d argue that maintaining a well diversified portfolio now more than ever makes a multitude of sense.
While I’ve been somewhat dovish in terms of interest rate expectations for many years now, I’d say that Trump’s election probably moves me more towards the hawk column. Still, there are economic hurdles ahead that shouldn’t make this a runaway race to the upside.
Also, the fact that we are headed into the always difficult-to-predict tax loss season, I don’t think I’d be in a rush to buy anything that’s been beaten down. Odds are that these stocks might get further pinched before the end of year as investors offset gains. Still, I’d get a list together and consider edging into equities that become too cheap to ignore.
Here’s a diversified list of 5 equity-income stocks to put on your short-list to own:
- STORE Capital (STOR) – A triple-net single-tenant REIT that leases to commercial operators.
- Airlease (AL) – A company that leases commercial aircraft to operators around the globe.
- Apogee (APOG) – A purveyor of innovative real estate glass solutions
- Carriage Services (CSV) – An owner of funeral homes and cemeteries across the states.
- Cedar Fair (FUN) – A master limited partnership that owns amusement parks