This year was filled with multiple surprising events that no one ever believed would transpire in their lifetime. In late June, citizens of the United Kingdom voted to leave the European Union after a long standing relationship of about 25 years. This shortly followed the Cleveland Cavaliers winning an NBA championship for the first time in 60 years and the Cubs breaking the curse of the Billy Goat, a 108 year drought without a World Series victory.
Lo and behold, the American public was dealt another surprise this week. In a dominant fashion, Donald Trump won the 2016 election and will assume the position as the 45th President of the United States.
Trump’s course of action still remains a mystery to many Americans, even those who voted for him, but from what we can gather from his erratic speeches over the past year, there are a handful of stocks and earnings that should grab investor’s attention in the next 4 years. At the heart of his campaign was the need to build out infrastructure, bolster the military, reform healthcare and renegotiate our trade deals. These sweeping promises, whether or not they hold, will mean one of two things for corporate earnings starting next year; either estimates are revised heavily downward or start to inch up.
"Make America Great Again" is the slogan that swept the nation for the past 12 months when Trump first announced his candidacy. Behind the phrase was a perceived need to rebuild American manufacturing and infrastructure which had otherwise been outsourced to emerging markets like China. Household names like United States Steel (NYSE:X) and Caterpillar (NYSE:CAT) have seen financial performance bottom out in recent years.
It’s not surprising that the election results spurred a huge buying opportunity in the industrial sector that will likely continue as new infrastructure, oil, gas and coal mining projects begin. Like it or not, infrastructure and construction spending is about jump in the coming years as America shifts its focus back to blue collar jobs.
Just behind infrastructure on his priority list was replacing the Affordable Care Act with something great and rearming the military. The Affordable Care Act, or Obamacare, has been one of the most polarizing issues since its passage at the turn of the decade. In its albeit short history, it has provided 20 million Americans with health coverage which has come at the cost of big insurance.
Aetna (NYSE:AET), like the rest of the industry, has claimed to have lost $430 million dollars since January 14 on ongoing issues with the risk pool of people signing up under Obamacare. It’s almost certain that Trump will repeal that act, which he can do without Congress, in the first 100 days of his Presidency and large insurance companies can go back to their prior ways.
Protecting the country from domestic terror attacks has always been near the top of the President Elects’ platform. To do this would involve bolstering military spending and rearming our troops all over the worlds. Defense contractors such as Lockheed Martin (NYSE:LMT) and General Dynamics (NYSE:GD) have been two of the biggest American companies looked to for these services.
With new defense contracts expected to be doled out next year, it’s only a matter of time before one of these names begins to surge. By contrast, firearm dealers could start to run dry under a Trump Presidency. The urgency to purchase firearms has greatly subsided now that a republican and second amendment supporter will take office. Smith & Wesson (NASDAQ:SWHC) along with Sturm Ruger & Company (NYSE:RGR) were both down nearly 15% in the fallout from the election.
Trump’s backward looking approaches may have their upside, but will likely hurt more industries. Some of his more controversial statements concerned the renegotiation of our trade deals, NAFTA and TPP. Free trade is the cornerstone of the retail market that provides consumers with a 50 inch TV for less than $300. A yuuuge overhaul of the current deals would have the biggest impact on the nation’s largest multinationals that rely on foreign parts or products to drive sales.
This can range from retail giant Walmart (NYSE:WMT) to tech conglomerate Apple (NASDAQ:AAPL). Trump’s favorable tax rate may help but won’t fully offset some of the impact of higher production costs and lost sales.
It’s still difficult to comprehend the gravity of this election or how it will impact the markets over the next four years. Trump’s policies, beyond being the “best,” are still unclear, but what we can gather from previous speeches is that there is an intent to isolate America from the rest of the world. The impact of these policies will carry industrials and manufacturing earnings higher but take their toll on many other sectors.