06 Jan Stock market risk and reward with Trump

Q. What areas of the market are going to be at risk with a Trump presidency? I know we’re not sure of all his policies, but I want to be prepared.
— Arming myself

A. You’re correct that we’re not sure what policies President-elect Trump will enact and what they will mean for the economy or the stock market in general.

We can make some educated guesses, though.

And the only guarantee is the changes, when they come, have the potential to be significant.

Trump’s “America First” emphasis means domestic focused U.S. companies should outperform their international counterparts because the domestics will have less exposure to a potential trade war, said Chip Wieczorek, a certified financial planner and investment advisor with Tradition Capital Management in Summit.

“Companies that are exposed to government buying power, namely defense and health care, will also receive greater price scrutiny for existing and future government contracts,” Wieczorek said. “This would most likely end up with the defense companies lagging the overall market even in the face of potentially greater defense spending as margins go down.”

Wieczorek said the health care sector is harder to generalize about because companies have very different exposures. But, he said, drug pricing will be a target.

“When it comes to pricing being provided to Medicare, we would expect negotiations on pricing and some resulting pressure on the sector overtime,” he said. “We are very concerned over the health care intermediaries, which could be construed to add little real value or being toll seekers, like pharmacy benefit managers, HMOs and drug distributors.”

Wieczorek does see positives for some sectors.

If infrastructure spending increases, it could be a positive for engineering and construction firms, and for materials companies such as steel and concrete firms, he said. Domestic steel could benefit from further restrictions or tariffs on steel imports and concrete could benefit from infrastructure spending.

The financial sector has already seen big moves to the upside.

Banks should receive some regulatory relief, Wieczorek said, and given the magnitude of the stock price moves since the Trump victory, the market clearly is anticipating an improvement in banking profits.

“Lower regulatory burden and tax incentives should allow businesses to increase hiring and be a positive for the ability of consumers to spend,” he said. “This should be an overall benefit to consumer discretionary companies in the housing and auto area in particular.”

Although increased interest rates will cause the borrowing rates to become more expensive, Wieczorek said he believes consumer discretionary companies should see a net positive under Trump policies.

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This post was first published in January 2017.