With election season heating up, investors are already speculating about the potential impact of a Donald Trump return to the White House. The financial markets are responding accordingly, with notable shifts across various sectors. Energy, industrials, financials, and cryptocurrencies have seen rallies, while solar and other clean-energy stocks have suffered significant declines.
However, the uncertainty surrounding Trump’s candidacy remains high, reminiscent of the market fluctuations triggered by his remarks during his previous term. This time, the tech sector is particularly volatile, fueled by Trump’s recent suggestion that Taiwan should bear the costs of U.S. protection.
Energy Sector: A Double-Edged Sword
The Republican party’s 2024 platform includes the familiar catchphrase “Drill baby drill,” yet this slogan may not hold the same weight as before. During Trump’s first term, despite his support for fossil fuels and withdrawal from the Paris Agreement, the energy sector experienced a 30% decline in total returns, largely due to the impact of COVID-19 and low oil prices. Contrastingly, under Biden, the sector has seen a remarkable 148% return, despite his promotion of a “Green New Deal” and rejoining the Paris Agreement.
Increased domestic production might not be a priority for the energy industry, given the current abundance of oil and gas. Even with Republican plans to boost U.S. production by three million barrels a day, companies may be reluctant, fearing further price drops. At $60 per barrel, prices remain too low to incentivize new production, as noted by J.P. Morgan’s energy analysts. Additionally, a potential resolution to the Ukraine conflict, another Trump objective, could introduce more Russian gas into the market, further pressuring prices.
Investment in energy supermajors like Exxon Mobil (XOM) and oil-services companies such as Halliburton (HAL) could be beneficial. Analysts at Evercore ISI suggest that these companies, along with natural-gas firms like EQT (EQT), could gain if Trump removes Biden’s pause on new liquefied-natural-gas terminals. Other companies that might benefit include Cheniere Energy (LNG) and Sempra (SRE), along with pipeline operators like Kinder Morgan (KMI), Targa Resources (TRGP), and Williams Cos (WMB).
Conversely, the clean energy sector could face challenges. Trump has indicated plans to repeal subsidies for renewable energy and electric vehicles (EVs), although this may prove difficult due to the Inflation Reduction Act’s funding of new plants in Republican districts. While Trump could use executive orders and rule changes to impact Treasury and Internal Revenue Service policies, Tesla (TSLA) CEO Elon Musk has downplayed these concerns, suggesting that removing subsidies would ultimately benefit Tesla. Other EV manufacturers, such as Rivian Automotive (RIVN), might struggle as Trump’s poll numbers rise.
Financials and Cryptocurrencies: Potential Winds of Deregulation
The financial sector could see a significant boost from deregulation under a Trump administration. Large banks and financial firms, eager for relief from the Basel III capital requirements, might find an ally in Trump’s deregulatory agenda. Project 2025, a conservative blueprint, proposes integrating the Financial Industry Regulatory Authority (FINRA) into the Securities and Exchange Commission (SEC).
Economic growth under Trump could benefit the financial sector, especially if paired with easing interest rates to boost lending activity. However, Republican tax and trade policies might rekindle inflation, complicating the Federal Reserve’s rate-cutting plans through 2025.
Wall Street’s hope for increased mergers and acquisitions (M&A) activity hinges on a Trump presidency, potentially generating new fees for investment banks like JPMorgan Chase (JPM), Goldman Sachs Group (GS), Morgan Stanley (MS), and Citigroup (C). Rich Nuzum, global chief investment strategist at Mercer, anticipates higher deal activity under Trump, although Vice Presidential candidate J.D. Vance’s support for Biden’s Federal Trade Commission chair Lina Khan might pose challenges for large-scale mergers.
Trump’s evolving stance on cryptocurrencies, from initially dismissing Bitcoin (BTC) as a “scam” to now advocating for crypto protections in the Republican platform, signals potential growth for the sector. His campaign’s acceptance of crypto donations and a pro-crypto regulatory environment could benefit Bitcoin, Coinbase Global (COIN), and fund companies like BlackRock (BLK). However, the classification of crypto transactions by the SEC remains a contentious issue, likely requiring judicial resolution over the coming years.
Tech Sector: Navigating Trade and Regulation
Regardless of the election outcome, Big Tech faces significant trade and regulatory challenges. A deepening trade war with China and Trump’s comments on Taiwan have introduced additional instability. Reports of Biden considering increased restrictions on chip exports to China have also impacted the sector.
J.D. Vance’s critical stance on Big Tech, despite his industry ties, suggests potential regulatory hurdles. His support for Lina Khan’s actions against major tech firms like Alphabet (GOOGL), Amazon.com (AMZN), and Meta Platforms (META) adds to the uncertainty.
Key Takeaways
- Energy Sector: Potential benefits for fossil fuel companies but challenges for renewables if Trump’s policies favor traditional energy sources.
- Financials: Deregulation could boost large banks, with M&A activity possibly rising under a Trump administration.
- Cryptocurrencies: A more favorable regulatory environment for crypto could emerge, benefiting Bitcoin and related companies.
- Tech Sector: Ongoing trade tensions and regulatory scrutiny present significant challenges.
Conclusion
Investors face a complex landscape as they consider the implications of a potential Trump return to the White House. While certain sectors might benefit from his policies, the overall market impact remains uncertain, with significant challenges and opportunities ahead. Balancing short-term trading strategies with long-term investment goals will be crucial in navigating the evolving political and economic environment.
