The Market Has Already Started to Dump Trump
Stocks once regarded as out of favor with the incoming president outperformed following his news conference, confirmation of a move under way in the market for more than a month
( The Wall Street Journal) -Markets responded to Donald Trump’s rambling news conference on Wednesday by dumping Trump. The dollar and pharmaceutical and biotechnology stocks were sold, bonds were bought and stocks once regarded as out of favor with the president-elect outperformed.
This could be taken as a sign that investors prefer their presidents to be presidential. But it was also a confirmation of a move under way in the stock market for more than a month. The post-election Trump rally ran out of steam by mid-December, as hopes of a boom faded.
For the first month after the election, the market anticipated faster economic growth. Cyclical stocks most sensitive to the economy grew fast, while defensive shares best able to protect against a downturn lagged far behind. In the past month the optimism evaporated, with defensive sectors beating cyclicals and Treasury yields coming down slightly (in spite of a boost to cyclicals this year as economic data beat expectations).
Defense companies initially jumped, helped both by traditional Republican commitments to military spending and Mr. Trump’s promise during the election to end the defense cuts imposed by the 2013 budget sequester. But the 9% surge in the sector that took Boeing, Raytheon, General Dynamics and Lockheed Martin up far faster than the market fell short in mid-December. Mr. Trump took to the 21st century bully pulpit– Twitter–to attack the cost of Lockheed’s F-35 fighter jet, and after that the sector went nowhere.
Infrastructure spending is one of Mr. Trump’s signature plans. Not surprisingly, builders and construction suppliers soared after the election, with the construction-materials sector up 13% a month later. U.S. Steel leapt 72%, and U.S. Concrete 30%, while many smaller suppliers had double-digit gains. Since then the sector’s fallen 4%, as doubts set in about how much the government will actually spend, and how fast.
FANG stocks—Facebook, Amazon, Netflix and Google, now Alphabet— had a bite taken out of them after the election. They suffered both because their ability to deliver growth would be less appealing if the economy expands faster, as growth would be easily available elsewhere, and because the technology sector broadly supported Democrats. All four, and the sector, fell during the rising market for the first month after the vote, but have since powered ahead, perhaps helped by Mr. Trump’s meeting with tech leaders in mid-December.
Obamacare stocks that benefit from the Affordable Care Act were hurt badly by the election result, with Centene, HCA Holdings and Universal Health Services down 9% to 14% by Dec. 9. Since then Centene and HCA have made more than 8%, and UHS is up slightly.
Smaller companies would be a double winner from Republican tax plans. Uncertainty remains about how Mr. Trump’s plan will be reconciled with those pushed by House Speaker Paul Ryan, but both want to simplify and cut corporate tax rates and use the tax system to penalize imports. Small companies are less able to structure their businesses to use tax loopholes than the multinationals, so would gain more from a lower tax rate. They also tend to have more of a domestic focus, so should do relatively better than their bigger rivals from import restrictions. The Russell 2000 index of small-capitalization stocks beat large companies by the most after the election than any similar-length period since before the dotcom bubble burst in 2000, rising 16% by Dec. 9 against 5% for the mega-cap Russell Top 50 index. Since then the mega-caps have risen, while the Russell 2000 has dropped back a bit.
Student-loan servicer Navient, split out of Sallie Mae in 2014, was another Trump triumph for shareholders. Hillary Clinton’s plan to forgive student loans would have hurt Navient, so Mr. Trump’s election gave its shares a 29% boost in the first month. Again, the trend reversed, with Navient down 3% since then.