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Trump Basket Follow-Up: Still Room to Run or Too Late?
AInvestThursday, Nov 7, 2024 8:04 pm ET
10min read
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Donald Trump has mounted an improbably comeback to become only the second person to reclaim the Presidency after a loss (Grover Cleveland). His victory has resonated through markets with equities ripping higher.

Not only has he won back the presidency but he is outperforming expectations in the 2024 election, having secured 291 electoral votes and is on the cusp of being the first Republican president to win the popular vote in two decades. This impressive feat has not only bolstered his own standing but has also translated into significant down-ballot success, with the GOP on the brink of gaining 54 Senate seats, a solid majority. Meanwhile, the House of Representatives remains uncertain, yet Trump's popular vote performance is boosting GOP chances, increasing the likelihood of a red sweep that would grant Trump a strong mandate and the legislative support needed to advance his policy agenda.

The prospect of unified Republican control in Washington has ignited what analysts are calling the Trump Trade, with investors flocking to stocks expected to thrive under Trump's proposed policies. These names, spanning sectors from energy and defense to infrastructure and financials, are already experiencing heightened interest, as markets begin to price in anticipated regulatory changes, tax reforms, and a possible reshaping of trade policy. With many of Trump's policies seen as business-friendly and potentially sparking sectoral booms, this investment theme has quickly gained traction, sparking debates about which stocks hold the most promise for continued upside.

We highlighted this group last month in our election preview (Click here).

In this piece, we'll explore some of the key stocks that have gained traction in the Trump Trade, assessing whether further gains are possible. This will be part of an ongoing piece in which we will also examine the names presented in the Harris Basket for opportunities as some of these names may be left for dead and provide opportunities. For investors, these buy the dip opportunities may offer appealing entry points, allowing them to capitalize on potential growth while hedging against uncertainties.

First, lets take a look at the overarching themes of equities and yields. 

Equities

Stocks are poised to benefit from anticipated deregulation and tax cuts, but face headwinds from rising yields and increasing tariff risks. The S&P 500's price-to-earnings ratio remains elevated at approximately 22x, based on a projected index level of around 5900 and estimated 2025 EPS of $268, suggesting limited room for further multiple expansion.

The sentiment and positioning suggest there is more potential upside as "animal spirits' are likely to continue through the end of the year, barring any major event that upsets the current situation. The indices set up nicely for a run into the end of the year. However, there is plenty of risk given valuations and possible rising yields. 

Consider that when Trump won in 2016, 10-year yields were below 2%, the S&P 500's PE ratio was around 18.5-19x, and the corporate tax rate stood at 35%. Today, those figures have shifted significantly to approximately 4.44% for 10-year yields, a 22x PE ratio, and a 21% corporate tax rate.

Yields

Fiscal policy is set to remain the dominant macro theme of 2025, regardless of the election outcome, as the U.S. debt and deficit reach a tipping point. Bond markets are becoming more assertive in response to ongoing fiscal excess, and recent suggestions, like Elon Musk's $2 trillion cost-cutting figure, lack credibility given the absence of serious discussions around major spending areas like healthcare, defense, entitlements, and interest payments. Washington faces three challenging paths in the coming year: take no action and risk a yield spike, create a fiscal cliff by raising taxes and cutting spending, or implement tariffs in a limited attempt to generate revenue—all of which are likely to weigh on risk sentiment.

A Trump victory, combined with a GOP-led red wave, could accelerate the implementation of a pro-growth agenda that stimulates the economy through tax cuts and deregulation. This growth-oriented policy shift might add to recent strong economic data, prompting the Fed to reconsider or pause its rate cut path. With increased government spending and potential infrastructure investments, inflationary pressures could reemerge, making the Fed cautious about easing too aggressively. Ultimately, the Fed may opt to hold rates steady to prevent overheating as pro-growth policies take effect in the broader economy.

Markets will closely watch the 3.50-4.60% range in the 10-year yield.

Elon Musk Trades

A Trump-Musk alliance could significantly impact policies around electric vehicles, autonomous driving, and artificial intelligence, especially as Trump has indicated plans to pull rebates on E.V. subsidies, potentially disadvantageous to Tesla's competitors. The partnership might also influence U.S.-China trade policy, as Trump is known for his hawkish stance on China, advocating for high tariffs; however, Musk's reliance on the Chinese market for Tesla's growth could lead him to temper Trump's approach, which may align with Beijing's interests. Tesla is naturally a winner in the Trump victory.

The Destiny Tech100 Fund (DXYZ) could benefit from a Trump presidency due to potential policies favoring technology innovation and deregulation, which may enhance the growth prospects of its portfolio companies. Notably, DXYZ holds a significant position in SpaceX, Elon Musk's aerospace company, comprising approximately 34.6% of the fund's assets.  While Musk does not have a direct role in managing DXYZ, his leadership at SpaceX and other ventures indirectly influences the fund's performance. Therefore, policies that support technological advancement and private sector growth could positively impact DXYZ's holdings, including SpaceX. We will let the "To the Moon" jokes write themselves here. 

TSLA

There is no denying that this stock is too expensive from a fundamental standpoint. But Musk's position as confidante to the president means that "animal spirits' should remain in this name. 

DXYZ

This will be a volatile trade but we would expect to see plenty of headlines about SpaceX winning government contracts (Recall in his last term, president Trump was calling for a 'space force'). This is a name traders should keep on the radar for opportunity. We would not look at this as a buy and hold strategy. 

Aerospace and Defense (ITA)

Defensive names, such as defense contractors, healthcare, and utility companies, are likely to perform well under a Trump regime due to his strong focus on national security, infrastructure, and deregulation. Trump's stance on increasing military spending benefits defense companies by expanding government contracts for advanced weapons and cybersecurity systems. Additionally, Trump's potential policies around energy independence and infrastructure spending could drive growth in the utilities sector. Healthcare could also see stability, as Trump's emphasis on lowering drug costs without aggressive regulatory changes may create a favorable environment for major healthcare players.

Lockheed Martin (LMT)

Lockheed Martin is poised to benefit under a Trump administration due to anticipated increases in defense spending and a focus on military modernization. Historically, Trump has advocated for bolstering the U.S. military, which could lead to expanded budgets for defense contractors. Lockheed Martin, as a leading defense contractor, stands to gain from such policy shifts, particularly in areas like advanced fighter jets and missile systems. Additionally, Trump's emphasis on strengthening national security aligns with Lockheed Martin's core business areas, potentially resulting in increased contracts and revenue. 

Shares of LMT ripped above the $475 level in July. It hit $618.95 before pulling back. It is probing $540 for support which will be critical. A break below that would likely lead to a slide back toward $475. We would recommend adding a small starter piece at this level and be prepared to average down to strong support levels. 

Raytheon (RTX)

Under a Trump administration, RTX (formerly Raytheon Technologies) is poised to benefit from anticipated increases in defense spending, aligning with Trump's historical emphasis on military expansion and modernization. This policy direction could lead to more contracts for RTX's advanced missile systems and defense technologies. Additionally, Trump's focus on strengthening national security and defense capabilities aligns with RTX's core business areas, potentially resulting in increased revenue. Furthermore, a favorable regulatory environment under Trump may streamline defense procurement processes, allowing RTX to bring new technologies to market more efficiently. 

Shares of RTX have traded between $118-126 over the past couple of weeks. There is a line of thought that a Trump win could secure peace, for now, in the Middle East as Iran may be more wary of a response. Still, the trading pattern sets up an easily definable risk point for investors at $118. A break below that would suggest a re-test of the $108 level. So set stops around $115 and allow the pattern to play out. 

Financials (XLF, KRE)

Financials are well-positioned to thrive under a Trump administration, especially if Congress is controlled by the GOP, due to anticipated deregulation and pro-business policies. Trump's emphasis on loosening financial regulations would likely reduce compliance costs and free up capital for banks to deploy, supporting increased lending, investment, and growth initiatives. With a GOP-led Congress, financial institutions may benefit from accelerated tax cuts or reforms aimed at stimulating the economy, which would increase demand for corporate financing, advisory services, and investment banking. Additionally, the combination of lower regulation and potential tax incentives could spark "animal spirits" in capital markets, driving up trading volumes, IPOs, and mergers, all of which would be advantageous for major financial players.

The group has broken out and is enjoying a strong year. The upside may continue but we would be a little cautious about chasing the plays. 

Goldman Sachs (GS)

Goldman Sachs could thrive under a Trump administration due to a more favorable regulatory environment, potentially reducing compliance burdens and allowing for increased flexibility in its operations. Trump's stance on deregulation could ignite "animal spirits" in the capital markets, encouraging greater investment activity, IPOs, and mergers, all areas where Goldman excels. With increased corporate tax cuts and policies that favor growth, Goldman could see a rise in corporate finance and advisory services as businesses seek expansion. Additionally, market volatility and increased trading volumes, spurred by pro-growth fiscal policies, would likely boost Goldman's trading and asset management revenue streams.

A nice breakout and its exposure to capital markets makes this one of the more interesting plays in the financials. 

BGC Group (BGC)

Howard Lutnick, Chairman and CEO of BGC Group, is not only a key figure at the company but also a significant player in Donald Trump's transition efforts as co-chair of the transition team, actively supporting Trump's policy initiatives and assembling a team aligned with his administration's vision. Lutnick's dual role places BGC in a favorable position to benefit from Trump's business-friendly policies, particularly as Trump has historically advocated for lighter financial regulations, which could reduce BGC's compliance costs and enhance profitability. BGC's trading and brokerage business may also see increased activity from potential market volatility and higher interest rates under Trump's fiscal policies, such as tax cuts and deregulation. Additionally, BGC's significant real estate exposure through its subsidiary, Newmark, aligns well with Trump's pro-business tax and infrastructure initiatives, which could drive demand for BGC's real estate advisory and management services. Trump's strong stance on China could increase demand for U.S.-based financial advisory services, giving BGC opportunities to assist clients navigating cross-border complexities. 

With Lutnick's involvement in Trump's transition team and BGC's alignment with Trump's anticipated policies, the company appears well-positioned to excel under a Trump presidency.

Healthcare (XLV)

Healthcare names could benefit under a Trump administration due to a more favorable regulatory environment and a focus on market-based reforms rather than aggressive cost-cutting measures. Trump has historically emphasized lowering drug prices through negotiation without drastic price caps, which could benefit pharmaceutical and biotech companies by maintaining profitability while still appealing to public concerns about costs. Additionally, Trump's pro-business stance might ease certain regulatory barriers, facilitating faster drug approvals and innovation within the healthcare sector. With a focus on streamlining processes and supporting domestic production, healthcare providers, insurers, and pharmaceutical companies may all find opportunities for growth under this administration.

Humana (HUM)

Health insurers like Humana could benefit under a Trump administration due to anticipated policy shifts favoring the private sector. Trump's focus on deregulation and market-driven healthcare solutions may reduce compliance costs and foster a more competitive environment for insurers. Additionally, potential reforms to Medicare Advantage programs could provide growth opportunities for companies like Humana, which have significant investments in this area. Furthermore, a pro-business stance may lead to tax policies that enhance profitability for health insurers. These factors combined suggest a favorable outlook for companies like Humana in a Trump-led administration. 

The Centers for Medicare & Medicaid Services (CMS) operates under the Department of Health and Human Services (HHS), which is part of the executive branch of the U.S. government. As President, Donald Trump has the authority to influence CMS policies and regulations through executive actions and by appointing agency leadership aligned with his administration's priorities. For instance, during his previous term, the Trump administration finalized a rule enhancing price transparency requirements for health insurers, mandating that certain health plans disclose negotiated rates with providers.  Therefore, if elected, Trump could potentially modify or reverse existing CMS rulings affecting health insurers, depending on his administration's policy objectives. 

HUM is a name that may provide more opportunity for those who prefer to buy low rather than ride momentum. The stock has found ample support at $250 after the post-CMS ruling sell off. This could provide opportunity for investors. 

Pfizer (PFE)

Pfizer could benefit under a Trump administration due to the potential for a more favorable regulatory environment, which may streamline the drug approval process and reduce compliance burdens. Trump has historically advocated for faster drug approvals and has been open to market-driven healthcare solutions, which could accelerate Pfizer's ability to bring new treatments to market. Additionally, Trump's stance on lowering drug costs through negotiation—rather than imposing strict price controls—could allow Pfizer to maintain profitable pricing while addressing affordability. With a focus on promoting U.S.-based manufacturing, Pfizer might also receive incentives or support for domestic production, further enhancing its growth potential.

The chart is ugly and the weekly is showing a potential "Head and Shoulders" pattern. Investors should allow this to play out but a hold of $27 would make this an interesting play. 

Energy (XLE)

Energy companies are likely to thrive under a Trump administration due to his pro-oil and pro-gas policies, which would likely prioritize domestic production and reduce environmental restrictions. Trump has historically supported deregulation efforts, allowing energy firms to operate with fewer compliance costs and more flexibility in exploration, drilling, and production. His administration would likely focus on energy independence, potentially boosting demand for U.S. oil and natural gas and driving expansion in the sector. Additionally, Trump's opposition to certain climate-focused regulations, like the Paris Agreement, could further ease restrictions on fossil fuel companies, creating a favorable environment for growth in the traditional energy sector.

Energy has been trading in a tight range between $85 to $94 since July. It is edging higher for a possible breakout but it could be argued that geopolitical tensions are the bigger driver. One side note here- the worst performing sector under the Trump Administration was energy. The best sector under Biden? Yup, energy. Just keep that in the back of your mind.

Exxon Mobile (XOM)

Exxon Mobil could thrive under a Trump administration due to expected policies favoring fossil fuels and reduced environmental regulations, allowing for expanded oil and gas exploration and production. Trump's pro-energy stance would likely support domestic oil production, helping Exxon to increase output without the regulatory hurdles seen in recent years. Additionally, Trump's focus on energy independence could lead to more government support for U.S. oil exports, opening new markets for Exxon's global distribution. Reduced regulatory and compliance costs would further improve Exxon's profitability, making it well-positioned to capitalize on higher production and potential increases in demand.

This stock sets up nicely for a push higher. The higher lows established in mid-September and early November line this upo for a potential breakout above the $125 level. 

Coinbase (COIN)

Coinbase, a leading cryptocurrency exchange, could thrive under a Trump administration due to anticipated pro-crypto policies and a more favorable regulatory environment. Trump has expressed support for Bitcoin and digital assets, proposing initiatives like the Bitcoin Act, which aims to designate Bitcoin as a strategic reserve asset for the U.S. government.  Additionally, his administration may seek to reshape the leadership of regulatory bodies such as the Securities and Exchange Commission (SEC), potentially appointing crypto-friendly regulators to foster innovation in the digital asset space.  These developments could lead to clearer and more supportive regulations for cryptocurrency platforms, enhancing Coinbase's ability to expand its services and attract a broader user base. 

Shares of COIN broke out above the $220 level in response to the Trump victory. It is rallying into key resistance at the $270 area which would give us some pause chasing. A pullback to $220 would be a more ideal play for COIN. 

Conclusion

In conclusion, while several names in the Trump Basket have already seen significant gains, it's essential to approach with a balanced perspective—chasing high-flying stocks may not always be the best strategy. However, with animal spirits driving renewed enthusiasm in the markets, unique opportunities continue to emerge, especially in sectors set to benefit from pro-growth policies. Investors should remain patient, strategically timing their entries and carefully weighing risk, as outlined in this piece, to maximize potential upside while managing exposure. By understanding the dynamics at play and targeting the right entry points, investors can position themselves effectively in stocks poised to excel under a Trump administration. Moving forward, we will continue to explore opportunities within both the Trump and Harris baskets, keeping a close watch on developments in each.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.