Trump’s Victory Could Fuel Stocks in Selected Sectors

The surprising election of businessman and reality television star Donald Trump to become the next U.S. president could propel stocks in a number of highly regulated sectors, including health care, energy, financial services and industrials.

That view stems from a recent analysis by several T. Rowe Price equity experts who are predicting where investors may find the best returns during a Trump administration. The clear signal they are sending is that some sectors are much better positioned than others, if the policy positions the president-elect has floated during the campaign become reality.

Trump’s plans to repeal the Affordable Care Act, also known as “ObamaCare,”could be favorable for health care stocks, compared to the potential drug pricing regulation and other government intrusions that may have occurred if presidential challenger Hillary Clinton had won, said Ziad Bakri, manager of the T. Rowe Price’s Health Sciences Strategy.

While the president-elect has talked about allowing foreign-sourced drugs to be imported into the United States and letting Medicare negotiate drug prices, Trump’s election overall is perceived as good for drug stocks, Bakri said. In addition, some health care companies also would benefit if the U.S. government finds a way to allow the “repatriation” of their foreign profits, he added.

Managed care firms, in particular, would be helped if Trump puts more emphasis on free-market health plans, which have been losing money under the Affordable Care Act. However, hospital chain stocks could be hurt by his policies because they have benefited from greater usage by previously uninsured patients.

Energy companies also could benefit from a Trump presidency, said Jeff Rottinghaus, T. Rowe Price’s manager of the U.S. Large-Cap Core Equity Strategy.

Trump has promised an “energy revolution,” Rottinghaus said. With an anti-regulation stance, Trump is receptive to expanding energy production to include revitalizing the coal industry, he added.

The energy sector also could be helped by Trump’s expressed opposition to the Paris climate agreement and other steps to limit climate change, Rottinghaus said.

“In a vacuum, more energy production is a good thing — more jobs, cheaper oil, cheaper gas,” Mr. Rottinghaus says. “Less regulation could help energy investments because it could lower companies’ costs to pull resources out of the ground.”

Some financial services companies could get a lift on the intermediate term from Trump’s vow to repeal Dodd-Frank regulations, as long as sufficient safeguards remain to manage systemic risks, said Gabriel Solomon, manager of T. Rowe Price’s Financial Services Strategy.

“But a blanket repeal of Dodd-Frank would not be positive because some of the regulations are good for managing the risks that led to the 2008‒2009 financial crisis,” Solomon said.

Trump’s promise to reinstate Glass-Steagall legislation could be positive for some big banks that would have to break ties between their retail and investment banking functions, Solomon said.

“If you take some banks apart, the sum of the parts may be worth more than the current whole,” Solomon said.

However, if Trump pursues deficit spending, without achieving the heightened economic growth he expects, the result could be rising interest rates and inflation, which could create structural problems similar to the 1970s and hurt financial services companies, Solomon said.

Industrials could be aided by Trump’s plans to cut corporate taxes and loosen federal regulations, which could bring back some U.S. manufacturing and jobs, said Peter Bates, manager of T. Rowe Price’s Global Industrials Strategy.

A renegotiation of the North American Free Trade Agreement (NAFTA) and the erection of trade barriers would be less significant for U.S. manufacturers, as long as a trade war is avoided, Bates said.

“Industrials are focused on building products the world will consume as cheaply as possible,” Bates said. “Companies have made significant investments in Mexico. With higher tariffs, more stuff may be made in America on the margin, but companies are not going to shift away suddenly from Mexico. Their higher costs from any tariffs would just get passed on as inflation to consumers. What happens in the long term for industrials depends on relative cost structures, and that’s not just tariffs and taxes.”

Campaign promises to boost defense and infrastructure spending are unlikely to have a “material impact” on the outlook for industrials because it may just be incremental to what already is budgeted, Bates said.

President-elect Trump’s stated immigration and trade policies generally would hurt the U.S. technology sector, said Josh Spencer, manager of T. Rowe Price’s Global Technology Equity Strategy. Technology is one of the most globally competitive U.S. sectors and relies on an influx of highly skilled talent from around the world, as well as global supply and distribution chains, Spencer added.

The biggest reasons for Trump’s win likely stem from economic and job issues, Spencer said.

Reduced taxes, particularly on repatriated overseas corporate profits, would help global technology firms that have shielded billions of dollars abroad, Spencer said.

Three trends essentially determine the outlook for technology stocks: the growth of cloud computing, disruption of traditional industries due to the Internet’s increasing pervasiveness and technologies pushing into new end markets, such as self-driving cars.

“Trump’s election does not change these trends,” Mr. Spencer said.

In the view of free-market economist and seasoned stock picker, Dr. Mark Skousen, sectors that have advanced the most in the past week include financials, defense, pharmaceuticals, retail, infrastructure, for-profit universities and non-renewal energy such as coal. Skousen, editor of the Forecasts & Strategies investment newsletter, said he has current recommendations in most of those sectors that are on the rise in his newsletter and trading services.

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Paul Dykewicz is the editorial director of Eagle Financial Publications, editor of StockInvestor.com and DividendInvestor, a columnist for Townhall and Townhall Finance, a commentator and the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a Foreword by legendary football coach Lou Holtz. Visit Paul’s website at www.holysmokesbook.com and follow him on Twitter @PaulDykewicz.