The Trump 2.0 Era: How to Profit from the 2024 Election Aftermath
2min read With the 2024 U.S. presidential election now decided, former President Donald Trump has reclaimed the White House after an eight-year hiatus. This time, the Republican Party has also taken control of the Senate, with a commanding lead in the House, signaling the arrival of a red wave. The next four years will mark the beginning of Trump 2.0. So, what's the secret to making money in this new era?
The Trump Trade: A Predictable Pattern
Looking back to Trump's first term in 2016, certain trading patterns became clear. The U.S. dollar soared, and the stock market continued to climb—both were key elements of the Trump Trade, and the market's reaction following his victory this time is similar.
Since specific policy details for Trump 2.0 have yet to be unveiled, investors are turning to past performance during presidential debates to guide their trades. In late September, Trump faced off against Biden in the first presidential debate, where he was seen as the clear winner. The market reacted accordingly: the S&P 500, the dollar index, and Bitcoin all surged, while U.S. Treasury yields rose. In contrast, during the September 10th debate with Vice President Kamala Harris, Harris was perceived as having won, which led to the opposite market reaction: U.S. stocks weakened, Treasury yields dropped, and cryptocurrencies declined.
This demonstrates that the framework for the Trump Trade is already established: markets generally believe Trump's economic policies will benefit the dollar, U.S. Treasury yields, and digital currencies. As for U.S. stocks, with election uncertainty out of the way and the Republican Party's long-standing support for tax cuts and deregulation, corporate profits are expected to rise, making for a strong stock market outlook.
Should You Go All In on the Trump Trade?
Not so fast. While Trump's favorable poll numbers and strong likelihood of victory may seem like a green light for Trump trades, much of this has already been priced into the market. From June 17 to the present, the correlation between 10-year U.S. Treasury yields, the dollar index, and Trump's chances of winning has been as high as 0.7—indicating that these assets have already priced in much of the potential outcome. Similarly, Bitcoin's correlation with Trump's chances is at 0.46. Thus, many of these trades have already been factored in, so it's important to proceed cautiously.
Where Are the Opportunities?
Some investment banks point out that the main opportunity in the Trump Trade lies in the stock market. Over the next four years, Trump 2.0 is expected to roll out a series of policies that will benefit certain sectors and companies. From a structural perspective, Trump's focus on tax cuts and deregulation favors tech growth stocks. However, his aggressive fiscal policies will bring upward pressure on the dollar and U.S. Treasury yields, increasing corporate financing costs and negatively impacting small-cap stocks with weaker fundamentals.
Sector-Specific Opportunities
Traditional Energy & Fossil Fuels: Trump has long championed the mantra of "Drill, baby, drill," though this could have mixed effects on oil prices. More drilling could lead to oversupply and further pressure on prices. While traditional energy stocks have surged, the risk of weaker oil prices has yet to be fully priced in by the market.
As for renewable energy, Trump didn't completely restrict the sector during his first term. In fact, U.S. renewable energy production hit record highs, and subsidies for clean energy grew significantly from $7.1 billion in 2017 to $17.3 billion in 2020. Once the market shakes off short-term volatility, clean energy could remain a solid long-term investment.
Deregulation: Republicans have long pushed for deregulation, particularly in the financial sector, and this could boost small biotech companies. With fewer restrictions on mergers and acquisitions in the pharmaceutical industry, smaller players may see a rise in activity. The market has yet to price in this potential opportunity.
Additionally, tech giants, which have faced numerous antitrust investigations, could catch a break under Trump's policies.
U.S. Treasury Yields & Inflation-Protected Assets: Trump's policies are likely to push U.S. Treasury yields higher, which could make metals and mining stocks attractive. These industries typically benefit from rising inflation.
Tax Cuts: Trump has promised significant budget cuts, including slashing the Department of Education's budget. This could lead to a shift in responsibility to state and local governments, potentially spurring growth in the education sector. Education stocks may see upside as a result.