A red sweep: What it means for your portfolio

In the end, the race was not that close – Former US President Donald Trump had obtained 312 electoral votes while Vice President Kamala Harris was far behind with 226 votes.

A red sweep

The Republics also won the majority of seats in the Senate. As for the House of Representatives, the GOP is in the lead by a comfortable margin as of Nov 11 and with just 4 more seats to win control of the House, there is a strong chance that there will be a “red sweep” scenario.

A red sweep would mean that the Republicans would have full control of the White House and both houses of congress. Trump would have a much easier time putting in policies that focus on key areas such as enhanced enforcement of immigration laws, strengthened border security, increased tariffs on certain imports, and shifts towards conservative education policies.

Will history repeat itself - Trump trade edition

After the election results were out on Nov 6, there was a significant boost in share price to the many sectors that were thought to be beneficiaries of Trump’s policies, led most notably by Financials. After the initial pop, prices have mostly remained stagnant. The question on many investors’ minds is whether the Trump trades can translate into longer-term Trump investments. For that, we can perhaps turn to Donald Trump’s presidency as many of his promises and policies are expected to remain the same.

When Donald Trump won the 2016 election, many investors and Wall Street analysts anticipated that his pro-business, deregulation-focused policies would benefit certain sectors.

1. Energy (especially fossil fuels)

Trump’s promise to roll back environmental regulations was seen as a boon for the fossil fuel industry, particularly oil, gas, and coal. Investors expected that a friendlier regulatory environment would lead to higher profitability for these companies.

Outcome: While Trump did roll back numerous environmental regulations, external factors such as global oil prices and shifting demand trends (e.g., renewable energy growth) muted some anticipated gains. Energy stocks did see an initial lift, but longer-term returns were mixed, especially as the COVID-19 pandemic severely impacted oil demand and prices in 2020.

2. Financials

Trump’s proposed tax cuts and plans to ease financial regulations, particularly aspects of the Dodd-Frank Act, led to optimism around the banking and financial sectors. Many believed this would boost lending, profitability, and stock valuations.

Outcome: Financials enjoyed a short-term boost, partly due to tax reform which increased after-tax profits. Regulatory rollbacks did provide some cost savings, but returns were ultimately influenced by a range of market factors, including the 2020 downturn.

3. Industrials and Infrastructure

Trump’s promises of massive infrastructure spending, along with a focus on domestic manufacturing, made investors bullish on the industrial sector. Companies involved in construction, engineering, and related materials were expected to benefit.

Outcome: While infrastructure was a recurring theme during Trump’s presidency, a comprehensive infrastructure bill did not materialise. Industrial stocks benefited in part from a stronger economy in the initial years of his administration, but the anticipated large-scale government spending on infrastructure never fully took shape.

4. Defence and Aerospace

Increased defence spending was a key aspect of Trump’s platform, leading to positive expectations for defence contractors and aerospace companies.

Outcome: Defence spending did increase, and defence stocks generally performed well. Companies in this sector saw stable growth throughout Trump’s term, meeting or even exceeding investor expectations as budgets for defence continued to rise.

5. Technology

The technology sector was a mixed case. While Trump did not explicitly target technology for growth, the industry had been performing well regardless. However, there were concerns about potential trade tensions with China, especially around technology and intellectual property.

Outcome: Despite some trade-related headwinds, the technology sector outperformed throughout Trump’s tenure, driven by factors like digital transformation and demand for online services. Trade policies had a limited impact on the overall growth of tech giants, which became even more pronounced during the COVID-19 pandemic as reliance on digital services surged.

6. Healthcare and Pharmaceuticals

There was optimism that Trump’s focus on deregulation would reduce compliance costs for healthcare companies and pharmaceuticals. However, Trump’s push to lower drug prices created some uncertainty within the pharmaceutical industry.

Outcome: Healthcare stocks saw mixed results. While deregulation efforts had some positive impact, Trump’s efforts to lower drug prices weighed on sentiment, especially for pharmaceuticals. The sector did not experience the broad boost some investors had anticipated.

Overall, some sectors performed as expected, particularly defence and financials, partly due to tax reform and deregulation. However, energy and infrastructure did not see the broad gains anticipated, largely due to external economic factors and unrealized policy promises.

The Trump administration’s policies influenced markets in nuanced ways, but broader economic factors and shifts in global demand ultimately played significant roles in determining sector performance. Investors learned that while policy changes can provide tailwinds, market forces often have the final say.