Wall Street Is in For a Surprise: A Trump Presidency

Posted: Jun 01, 2016 12:01 AM
Wall Street Is in For a Surprise: A Trump Presidency

By: Tim Maverick, Senior Correspondent

While the Democratic and Republican parties argue about revolution, Wall Street remains in favor of maintaining the status quo.

This is why – as reported by The Wall Street JournalHillary Clinton is the preferred candidate for most financial executives. The Journal reports that Wall Street has already raised nearly $23 million for the Clinton presidential campaign, as she is the only candidate aiming to build on the existing presidential party platform.

No surprise there.

But what’s unexpected is that this does not only reflect the attitude of the executives on Wall Street. Across the board, Trump is still considered a “joke.” Most of those in the exclusive financial circles still think he has zero chance of becoming president, despite his strides towards securing the Republican candidacy.

Needless to say, Wall Street has not prepared, at all, for a Trump presidency. As bond guru Jeffrey Gundlach of DoubleLine Capital – who predicts a Trump win – has said, “Wall Street is out of touch with the rest of the country and its discontent.”

This lack of preparation on Wall Street could, ultimately, result in major market moves, and profit opportunities ahead.

Trumping the Investment Classes

Even if Trump is elected, it’s anyone’s guess as to what his exact policies will be.

Wall Street Daily’s Editorial Director, David Dittman, made sense of some of Trump’s more dense statements on policy, in an attempt to unpack his platform promises in this article, a few weeks ago.

With only comprehensive speculation available on so many important issues, it’s crucial that we begin to predict how each investment class will fare under President Trump. Just because Wall Street isn’t prepared, doesn’t mean the rest of us shouldn’t be.

Currencies: A Trump presidency may be the first – since Bill Clinton’s first term – to actually talk down the value of the dollar. The reason stated will be trade fairness. But this move will likely further inflame the ongoing currency war.

Bonds: There is no doubt that Trump loves debt. Just look at all of his business ventures – his resume is riddled with debt and bankruptcy, and the man certainly knows how to manipulate both in his favor. With his know-how laden with money troubles, the country, under his watch, would likely include more government spending and therefore more government debt.

The wild card overall, would be if he gives Janet Yellen the axe.

However, no matter what, the flood of foreign money – thanks to negative interest rates globally – will continue to pour into U.S. Treasuries and push down long-term rates.

Commodities: If Trump raises heck with Mexico, our booming exports of natural gas to Mexico could suffer. But Trump would likely support continued fracking, unlike Clinton.

With fracking left in the equation, this could mean more U.S. oil production and consequently, low oil prices.

Otherwise, a Trump or Clinton presidency (as most free-spending presidencies) will provide a further boost to precious metals as other commodities lose value.

How to Trump Wall Street

A President Trump will have a mixed effect on stocks and the market.

Some of the winners will, no doubt, be infrastructure-related stocks.

In Trump’s own words, from his book Crippled America: How to Make America Great Again, he says, “Fixing our infrastructure will be one of the biggest projects this country has ever undertaken.”

Trump is poised to potentially take a page right out of former U.S. President Franklin Delano Roosevelt’s New Deal. Millions of new jobs could be created, and trillions could be spent on upgrading our failing infrastructure.

To capitalize on a move like this, there are lots of infrastructure stocks to choose from, including the likes of Granite Construction Inc.(GVA), Tetra Tech Inc.(TTEK), and AECOM(ACM).

Additionally, Trump is pro-military, but with his lack of a clear trajectory, it is entirely unclear exactly how defense companies will fare with Trump in the White House.

In March, Trump said: “I’m gonna build a military that’s gonna be much stronger than it is right now. It’s gonna be so strong, nobody’s gonna mess with us. But you know what? We can do it for a lot less.”

This sentiment leaves a lot to be desired by way of an actual strategy. As usual, Trump has a lot of words for saying almost nothing.

Will he actually spend less on the military? With his debt history, this is unlikely, but not impossible.

Furthermore, pharma and biotech companies will likely be hurt under a Trump presidency.

Trump will likely look to work “deals” on drug pricing, particularly with regard to Medicare. He also vows to repeal Obamacare, but what he will propose in its place is uncertain.

On the other hand, financial stocks would benefit. Trump does not like large portions of Dodd-Frank regulations and will likely look to repeal them.

As for technology stocks, other than his insistence that we are in the midst of another tech bubble, Trump hasn’t said enough on the issue to give a clear indication of his plans for the sector.

But what we can count on, is that if Trump turns up the heat on the currency war, the big multinational firms will suffer.

Throughout this presidential race, Trump has, and continues to be, the ultimate wild card – his policies are all over the place, he contradicts himself on a daily basis, and his penchant for debt looms large. But unlike the Wall Street elite turning a blind eye to the reality of the Republican Party’s 2016 candidate, it’s time we really sit down and think about the possible effects of a Trump presidency on the financial markets.

And, this is just a start.

Good investing,

Tim Maverick

Tim Maverick boasts decades of experience in the investment world. He spent 20 years at a major brokerage firm as a trading supervisor and broker working directly with clients. He also wrote the daily market update for the firm’s Mid-Atlantic Region. Tim has been writing for financial publications for the past 10 years. Before joining Wall Street Daily, he wrote for Tim Seymour's (CNBC) Emerging Money, Tom Lydon's ETF Trends, Commodity HQ, Money Morning, Investment U, and Wyatt Investment Research. With Tim's experience working with retail investors, he's particularly adept at helping everyday investors understand the financial markets. Follow Tim on twitter@TimMaverickWSD.