The last few weeks have been quite a whirlwind in US politics.
Joe Biden’s recent decision to drop out of the race for a second presidential term has thrown a new curveball into the already dramatic 2024 election.
This development follows a shocking event: Donald Trump was nearly assassinated at a rally in Pennsylvania, a state central to America’s industrial past.
Trump, who was already leading in the polls after Biden’s underwhelming debate performance last month, saw his chances of winning in November get a boost after the attack.
Now, with Biden out of the race, Trump is set to face off against Kamala Harris, Biden’s vice president, assuming she gets the Democratic nomination at the upcoming convention in Chicago. Despite the turmoil, Trump remains the strong favorite to return to the Oval Office.
So, what does this mean for investors? With the growing possibility of a Trump second term, many are wondering which stocks to pick and which to avoid.
Initially, Biden’s withdrawal did little to rattle the financial markets. The real action came with the news of Trump’s near-death experience, which saw the dollar rise and major stock indices like the S&P 500, Dow Jones, and Nasdaq gain ground.
Interestingly, shares in prison operators and gun manufacturers surged, reflecting Trump’s tough stance on immigration and gun control.
Cryptocurrencies also saw a jump, buoyed by Trump’s criticism of Democratic regulation and his upcoming appearance at a bitcoin conference.
On the downside, green energy stocks fell as expectations grew that Trump might undo Biden’s climate policies and ramp up oil and gas drilling.
While these reactions might seem hasty, they are influenced by Trump’s past presidency, which gave rise to what’s now known as the ‘Trump Trade’.
The ‘Trump Trade’ refers to market behaviors and movements driven by Trump’s economic policies and political actions during his first term.
This included deregulation, tax cuts, tariff increases, and more infrastructure spending funded by borrowing.
Despite its controversies, this agenda was generally seen as favorable to businesses and helped boost the stock market.
For instance, the S&P 500 rose by 62% from Trump’s re-election in 2016 until the start of the pandemic.
Technology firms in Silicon Valley particularly benefitted from lower corporate tax rates, while banks saw gains from reduced regulatory constraints.
However, some worry that history might not repeat itself if Trump wins again.
Nouriel Roubini, known for his often gloomy predictions, warns that a second Trump term could ignite a trade war that might negatively impact stock markets.
Trump’s plans to impose hefty tariffs on imports could lead to retaliatory measures and rising inflation, which could unsettle investors.
Possible Policy Shifts
Trump’s approach to NATO and foreign policy could also influence the market.
His criticism of NATO’s funding might lead to increased defense spending across the alliance, potentially benefiting defense stocks.
Yet, his stance on Ukraine, especially with his pick of JD Vance as a running mate, could complicate matters.
Investment Strategies
When it comes to investing, gold might be a good safe haven given the potential for inflation.
US banks could benefit from high interest rates, and energy companies might see gains if drilling activity increases.
However, be cautious with sectors like semiconductors, where tensions with Taiwan could have adverse effects.
Overall, investing under Trump’s potential second term requires a careful approach.
While some sectors may thrive, others could face significant challenges.
Always expect the unexpected with Trump, whose unpredictability makes forecasting particularly tricky.
Investing in US Stocks from the UK
British investors looking to buy US stocks should use a UK-based online broker, though this might involve higher fees.
They will also need to complete a W-8 BEN form to benefit from reduced tax rates on their investments.