Since Trump has become the new president, people have begun to wonder how his policies will affect the economy. Investors especially have a vested interest in this as they feel it could affect their investment strategy. But is there any real cause for concern? Not according to research from Fidelity Investments.
Fidelity Investments reviewed the performance of 3,000 of the largest US stocks while under Democratic and Republican presidencies. They found that the stocks on average increased 12.2 per year under Democratic presidents, while they rose 11.8 percent on average per year under Republican presidents.
This suggests that planning your investment strategy dependent on who is the president is probably not a great idea. However, there certainly some policies that will affect specific stocks more than others. Here are some ways you can use Trump to your advantage when investing:
One of Trump’s intentions is to reinstate the Glass-Steagall Act. This policy was designed to restrict commercial banks from undertaking investment activities, and it restricted the growth of these banks. By reinstating this policy, it would cause large banks to be broken up, affecting their profitability and stock price. However, it would benefit smaller regional bank stocks.
If you’re a trader that wants to take advantage of falling prices in financial firms, you can do so through derivatives. These includes purchasing call options for financial stocks, or short selling financial CFDs through a firm like CMC markets.
Health Care Businesses
Trump’s reforms the Affordable Care Act could disrupt the healthcare industry, especially insurance companies. It’s too early to tell whether these changes will affect insurance companies in a positive or negative way, so you may want to reconsider investing in these stocks.
However, since Trump favours less regulation, this could benefit stocks that deal with pharmaceuticals.
Trump has often made statements about strengthening the military, while at the debates and on his campaign trail. This would suggest that Trump is looking to increase military spending.
An increase in spending would be positive for defense companies that produce military equipment and parts, such as airplanes, weapons, and vehicles.
Businesses Who Export Goods
Trump has made many statements on wanting to renegotiate existing trade deals with the help of Congress. If successful, however, the renegotiation of trade deals could mean losses for companies that export large quantity of goods overseas. The new trade deals could make US goods more expensive to buyers overseas, and in turn lower demand for US exports.
Although the rates set by the Federal Reserve has been at close to zero for many years now, other factors might cause bond yields to increase. Trump has said that he wants to cut taxes and increase infrastructure spending. This is likely to be funded through the sale of government bonds, which will increase bond yields, and lower the value of bonds.
The volatility of bond prices and yields means that an investor looking for a yield is probably better off with a stock who pays high dividends.
Generally speaking, gold’s value increases when there is volatility on the stock market and other asset classes. Gold’s price increased when Trump won the election, but has returned to normal levels after the stock markets restored their balance.
Since the price of gold has fluctuated throughout Trump’s campaign, it is best to restrict the amount you invest in your portfolio and treat Gold as an insurance policy of sorts.
Trump has stated he is in favour of relaxing restrictions on energy companies. Gas and coal companies could benefit from this as the regulations would remove restrictions on fossil fuel usage. Also, oil companies could benefit from the reduced regulations on drilling.
Conversely, renewable energy companies who use solar energy and other environmentally friendly generation practices could be affected by this policy.
Although this may be an uncertain time for investors, as we are waiting to discover how markets will react to Trump’s policies, you can limit your downside by not taking large risks in any one sector or company. In fact, if you have a long term investment strategy, instead of a short term trading goal, then you should probably stick to your existing investment plan.
As the dust settles from the election and the news headlines die down, it will be clear what the fundamentals are. From there, investors will be able to see how to take advantage of Trump’s policies while investing.