Higher bond yields, more debt, bullish defence and oil & gas stocks…those are the kind of things we are hearing about markets if Donald Trump wins the presidential race this November. 

After the first debate went so badly for Joe Biden, and Trump later survived an attempted assassination, the odds on the former president winning for a second time have shortened a lot. 

Markets may well be already moving on expectations for a Trump victory, but it’s worth breaking down some of the potential outcomes and assumptions. I don’t like analysis that looks at what tends to happen to the S&P 500 in election years, or what performance looks like after a Democrat or GOP victory. This is a more qualitative approach looking at what we are facing now. 

First of all debt. We have to consider the fiscal outlook and by most accounts a Trump White House should mean more debt, which in turn would lead to higher bond yields and a steeper yield curve. Whilst there is less room for a repeat of his first-term fiscal expansion and tax cuts, which sent equities roaring higher, I think this remains the direction of travel for Trump 2.0. And other policies, such as tariffs, will be important. For instance, these could spark a rebound in inflation, which could push the Fed to raise rates.  

We have seen a move in the 10yr – it could be just because Powell is relaxed about cutting, but the 2yr is not moving.  We have bear steepening – the view is that Trump back in the White House is going to pile on more debt, cut taxes and drive growth, which ought to be +ve for stocks, -ve for bonds. Markets seem to be, tentatively at least, positioning for a more inflationary environment than we have now. Which might explain why the Fed is playing for time. 

A Trump presidency may also mean higher tariffs and more trade disruption. He has called for blanket tariffs of 60 percent against Chinese goods, 10 percent against products from the rest of the world.  These are in addition to existing tariffs he and Biden have imposed, including the 100 percent tariff on Chinese-made electric vehicles (EVs).  Trump has even suggested he could replace the Federal income tax by using tariffs.  

More protectionism risks further fragmentation of commodity markets, disruption to supply and higher prices generally. This would further stoke inflationary pressures. Within this we could see some volatility in Natural Gas prices due to the twin risk of a) US LNG exports hitting the market and b) any easing in Russian sanctions that allow Russian gas back on the market. 

Key trader macro themes – inflation, rates and the US dollar – would all likely go higher. This would have a big impact on lots of correlated assets – eg it could be very negative for a large swathe of emerging markets. 

Individual stocks  

Those likely to face headwinds from tariffs include Five Below (FIVE), Best Buy Co (BBY), Yeti Holdings (YETI), Nike (NKE), Starbucks (SBUX) and Apple (AAPL). 

Defence stocks such as Lockheed Martin (LMT), are seen by many as winners from a Trump focus on military spending. One caveat to this thesis would be a potential peace deal in Ukraine, though the likes of Thales (THLLY) and other European defence manufacturers could benefit from Trump pushing EU nations to spend more on defence. 

Energy stocks could move, too. We know Trump is likely to be friendly to big oil and gas, potentially easing regulations and greenlighting LNG exports. This could benefit, for instance, New Fortress Energy (NFE), Cheniere Energy (LNG), Valero (VLO), among others. Downside risks may rise for European majors like Total (TTE) and Shell (SHEL). 

Less obvious candidates may include Western Union (WU) – if Trump removes illegal aliens it would lower remittances ; or private prison group Geo (GEO), on the basis of more people in detention facilities. 

A Trump win could also result in Lina Khan leaving the FTC, which could spur more M&A activity and boost boutique advisory firms like Moelis (MC), PJT Partners (PJT), Evercore (EVR), and Houlihan Lokey (HLI). You could also therefore take a look at Kroger (KR), which is trying to buy Albertsons (ACI), or Capital One (COF) and its bid for Discovery (DFS). 

Among social media companies, Trump Media & Technology Group (DJT) is one to watch for obvious reasons. But elsewhere check how Trump treats Section 230, which protects sites like Meta and X from liability for the content posted by users. Any change could hurt the likes of Meta (META), Reddit (RDDT), or Snapchat (SNAP). 

Healthcare stocks – shares the Medicare Advantage stock UnitedHealthcare rose after the debate. RBC Capital Markets notes that “a second Trump term would ease regulatory and reimbursement headwinds weighing on the managed care stocks”. However, HCA Healthcare (HCA) has been flagged as one that could suffer. 

Wolfe Research highlighted a number of other stocks that might benefit from a Trump win and GOP clean sweep, including Sempra (SRE), Dow Chemical (DOW), 3M (MMM) Coinbase (COIN), Haliburton (HAL), SolarEdge Technologies (SEDG) and Tesla (TSLA), though the GOP platform calls for a ban on the electric vehicle mandate. 

Finally, Bitcoin might rally with Trump seen as ‘pro-Bitcoin’. “A fresh all-time for bitcoin in August is likely, then $100,000 by U.S. election day,” said Geoffrey Kendrick, Standard Chartered Bank’s head of forex and digital assets research. 

https://www.piie.com/blogs/realtime-economics/2024/trumps-proposed-blanket-tariffs-would-risk-global-trade-war 

https://www.piie.com/blogs/realtime-economics/2024/can-trump-replace-income-taxes-tariffs#:~:text=Can%20tariffs%20replace%20the%20income,corporate%20income%20taxes%20at%20present.