Weapons first, environment second
This is how investors are betting on a Trump victory
By Daniel Saurenz
January 27, 2024, 11:48 a.m
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In ten months the most important political decision of the year will be made in the USA. Whether Trump or Biden governs until 2028 is important for everyone – and especially for investors.
Election night on November 9, 2016 was more exciting than most crime scenes of the past forty years. At dawn, shortly before trading began in Europe, Donald Trump had prevailed over Hillary Clinton. At the opening, the DAX slipped almost four percent into the red, gold tumbled, and the US dollar also fell sharply at times. Trump, who was seen as an unpredictable election winner, spooked the stock markets. A surprisingly presidential victory speech then quickly caused the opportunistic investors to change their minds. The stock markets climbed an insane six percent over the course of the day, interest rates and the dollar calmed down, as did the price of gold. A good four weeks later there was a brilliant Trump rally of 20 percent by the summer of 2017. To understand 2024, you should remember 2016.
Because almost eight years later, Trump wants to know it again. The decision on November 4th will be an election with the opposite sign: in 2020, Joe Biden defeated incumbent Donald Trump, and now the Republican wants to return to the White House. For the challenger, the start could hardly have been better with two clear victories in the Republican primaries.
For the stock market, his governing style, which takes some getting used to, promises more volatility if he wins again. Last time, the comparable DAX price index and the S&P 500 were almost on par in the first twelve months. From the end of 2017, however, the gap widened: US stocks benefited from Trump’s “America First” motto and reached record highs, which Trump celebrated on Twitter. However, capital was withdrawn from the DAX. Tariffs on European goods and fears of a trade war were a deterrent. “If there are signs that Donald Trump and his America First policy will be re-elected, then this could possibly further increase the valuation premiums on American stocks. If he actually questions NATO, Europe’s security architecture would be extremely weakened,” says Stefan Riße, capital market strategist at Acatis Investment, new Problems ahead.
Dangers for Europe – profiteer USA
In the medium to long term, German stocks in particular appear to be particularly at risk from a Trump election victory due to their high export dependency. Swiss stocks or the British market, for example, are likely to suffer less. “America First would also mean that the US dollar would get a tailwind in the first step,” says Vanyo Walter from broker RoboMarkets. However, he points out that Trump’s possible interventions towards the US Federal Reserve and a plea for low interest rates would be counterproductive for the US dollar in the medium term.
Statistically, according to an analysis by the broker ActivTrades, the S&P 500 has increased significantly more over the past 100 years under a Democratic president, at a good 15 percent, than under a Republican president, at 9 percent. In the short term, markets are also likely to react more favorably if a president is re-elected as the risk of negative surprises decreases.
The election outcome has a greater impact, especially on individual sectors. If the White House remains in the hands of the Democrats, companies in the renewable energy sector in particular will find new hope. Biden’s dream of a climate-neutral US economy by 2050 is becoming a distant prospect given the US national debt of $34 trillion and difficult majority conditions. The Inflation Reduction Act, the US’s largest climate protection package to date, provides massive subsidies for the entire renewable energy sector.
“Since Donald Trump doesn’t believe in climate change, he could abolish the Inflation Reduction Act. There will then likely be a major shift from green energy stocks to the old world of oil companies,” says Acatis expert Riße. It would therefore come as no surprise that domestic companies are also looking across the Atlantic with concern. For example, SMA Solar wants to expand its presence in the USA. However, if Trump moves into the White House, dark clouds are likely to gather increasingly over the solar sector.
2016 reloaded?
Climate change and sustainability are two issues that are low on Trump’s agenda. As his time in office has clearly shown, he is a man of black gold. Shortly before the end of his term in office, he pushed through a controversial oil production project in a large protected area in Alaska in order to secure America’s independence from energy supplies. At companies like Exxon Mobil and Chevron, the champagne corks are likely to pop if Trump wins again.
Stricter gun laws are also unlikely to be an issue under Republican leadership. That’s good for stocks like Smith & Wesson. Things look more difficult for international defense companies such as Lockheed Martin and Northrop Grumman. In principle, under Trump, a larger part of the budget is likely to flow into arming the military. Biden, on the other hand, has clearly committed to NATO and support for Ukraine, while this is anything but certain under Trump.
The situation is clearer for financial stocks such as JPMorgan and Goldman Sachs. The institutions are likely to benefit from higher volatility in global financial markets and the prospect of decreasing regulatory pressure if the Republican prevails against the Democrats. Stocks from the technology sector that seem to be more favorably disposed towards Trump could also benefit, such as Meta shares, which jumped for joy after the first primary election.
Last but not least, speculation on the bond market would be tempting, because falling interest rates and thus stimulating the economy would be a clear dream scenario for Trump. “In stock exchange German, this means that you go long on bonds and short on interest rates,” says RoboMarkets expert Walter. If you want to risk even more, you should look at communications titles that Trump could use for his election campaign. These include Digital World Acquisition and Phunware. But be careful: Trump is always good for surprises, and no one can guarantee that 2016 will be the blueprint for 2024.
Daniel Saurenz runs the stock market portal “Feingold Research”
This article does not constitute a recommendation to buy or sell individual stocks or other financial products. No liability is assumed for the accuracy of the data.