Goldman: Optimistic economic outlook, "animal spirits" fuel new "Trump trade" These US stocks are worth watching.

With Mr Trump back in the White House, investors are seeking stocks most likely to rise as federal policy and spending priorities change. Goldman strategists see optimism about economic growth and the release of “animal spirits” – a term used to describe the tendency of human decision-making in economic activity to be driven by emotion, intuition and psychology rather than pure rational calculation – as two key elements of the “Trump trade”.David Kostin, a Goldman strategist, said in a report on January 24: “With the S&P 500 surging to a post-election high as a result of a series of executive orders and policy announcements, our recent conversations with clients suggest a high degree of uncertainty about how much the market has already priced in Mr Trump’s policy agenda and how much is left to price in as that agenda becomes reality.”Stocks of cyclical companies, such as manufacturers, airlines and restaurants, which are most sensitive to trends in economic growth, performed best after the election. Shares of defensive companies, such as consumer goods manufacturers, healthcare providers and utilities, lagged.“Cyclicals outperformed defensives by 6 percentage points on election day and have continued to outperform by 4 percentage points since then, outpacing the recent strength in economic data,” Goldman said.Evidence of animal spirits can be seen in recent survey data, such as the National Federation of Independent Business’s small business optimism index, which Goldman said jumped from 94 in October to 105 in December, the “largest two-month rise on record”.The improvement in confidence helped to lift stocks related to small business spending. Goldman included about 60 stocks in a basket in this category, 10 of which are listed below.Meanwhile, the bank’s analysis suggested that the prospect of tax cuts had not yet affected share prices. A basket of stocks sensitive to corporate tax rates “has moved roughly in line with macro recently, reflecting limited expectations for tax reform,” Goldman said.Congressional action, such as an extension of key parts of Mr Trump’s 2017 tax plan, would have a 1-2 per cent impact on the S&P 500, the bank said.