We can, of course, only guess which sectors will do well and which ones will not under Trump. But we can of course make some educated guesses. And here are some of mine.
What’s Going Up
- We can expect Trump to keep his promise to rebuild the military, which should help defense stocks.
- Banks are looking forward to less regulation and potential repeal of parts of Dodd-Frank, but higher interest rates will be a more important factor in their future profitability.
What’s Going Down
- The healthcare industry is likely to be roiled by Obamacare repeal.
- The energy section should experience more production which could keep energy prices low.
- The newspaper business is finished. Mainstream media lost all credibility in the election. I think in 5 years we’ll see The New York Times and Washington Post with almost no subscribers and independent sources like what you’re reading right now growing on every front. Besides spewing empty liberal shibboleths, mainstream newspapers are bleeding money, and their only hope is for a Jeff Bezos figure (CEO of Amazon) to come in and buy them like the Post.
- Most important, stocks are already fully valued and future gains will require seriously higher economic growth.
What’s Not Changing
While investors are obsessing over the potential effects on their portfolios of a Trump presidency, they need to remember that there are certain conditions in the American economy that will be impermeable to any new president’s policies. The foremost of these conditions is the $20 trillion federal deficit, the more than $200 trillion of global debt, and the government programs and business practices underlying these troubling statistics. You can get my in-depth analysis of the coming debt crisis here.
President-elect Trump is likely to focus on pro-growth policies at the expense of limiting the growth of US debt. He expressed little interest in reforming entitlements programs like Social Security and Medicare that are among the primary (but not the only) causes of rising federal deficits. Both of these programs will run out of money in the next couple of decades unless they are reformed. Whether Mr. Trump deals with this or leaves it for later presidents remains to be seen. ObamaCare repeal and reform, which he is highly likely to pursue, may help with the Medicare problem but it is too early to tell. But the bottom line is that there is little prospect that the debt crisis that has been building since the financial crisis can be avoided.
Interest rates have risen sharply since November 8 and are likely to keep rising, laying waste to bond portfolios. While current levels of interest rates are not yet high enough to hurt stocks, significantly higher rates (i.e. a 3% yield on 10-year Treasuries) will limit further stock market gains. The US corporate sector is heavily leveraged and will be hurt by higher rates. It will require significantly lower taxes to compensate corporations for their higher interest costs.
While Trump may improve some sectors shorter-term, our underlying debt problem is not going to go away. And while my 2017 forecast may be more bullish than the one I issued at the end of last year, my overall viewpoint remains the same: You can’t Trump the Super Crash. Not forever.