How to Invest if Trump wins: Investor Insights for Young Professionals
#31 A Young Professionals Weekly Investing Insights
Elections can turn even the calmest investors into nervous wrecks.
The mudslinging debates, apocalyptic rhetoric, and constant media hype make it feel like the fate of your portfolio hangs in the balance.
But here's the reality check you need:
the stock market is far more resilient to political changes than most people realise.
Let's dive into the facts.
Over the past 75 years, US Bank's analysis shows that elections have had minimal impact on long-term market performance.
Instead, economic fundamentals and inflation trends are the real driving forces.
This doesn't mean elections don't matter, but their influence is often overstated.
Tax policy is where presidents can make a tangible impact on markets.
Take Trump's Tax Cuts and Jobs Act, set to expire in 2025.
If not extended, corporate tax rates could jump from 21% to 35%.
This would directly impact company cash flows and, consequently, stock valuations.
For example, a company like Intuit could see its 2028 projected free cash flow drop from $6.3 billion to $5.7 billion under higher tax rates.
That's significant, but not catastrophic.
Here's an interesting insight:
the market seems to thrive on political gridlock.
When Congress is split between parties, with no single party controlling both chambers, historical returns have been highest at around 13.6-13.7%.
It's as if the market prefers a system of checks and balances that prevents extreme policies from either side.
This suggests that a divided government might actually be the best scenario for your portfolio.
The most crucial takeaway?
Stay invested, regardless of who occupies the White House.
Data shows positive returns under all party combinations.
Even the "worst" scenario (Republican president with full Democratic control of Congress) still yielded a 4.9% average annual return.
That beats sitting on the sidelines any day.
Potential Impact on Sectors
And while it's crucial to maintain a long-term perspective, understanding potential short-term sector impacts can help you position your portfolio strategically.
So here's a breakdown of sectors that could be affected by a Trump win:
Energy:
Trump's pro-fossil fuel stance could benefit traditional energy companies. Oil and gas firms might see reduced regulations and increased drilling permits. However, this could come at the expense of renewable energy initiatives.
Defense:
Trump's emphasis on military spending could boost defense contractors. Companies producing aircraft, weapons systems, and cybersecurity solutions might see increased government contracts.
Financial Services:
Trump's deregulation efforts could potentially benefit banks and financial institutions. Reduced oversight might lead to more flexible lending practices and potentially higher profits.
Healthcare:
This sector is tricky. Trump's opposition to the Affordable Care Act could create uncertainty for insurers and hospitals. However, pharmaceutical companies might benefit from less pressure on drug pricing.
Infrastructure:
Trump's promise to invest in American infrastructure could boost construction, materials, and engineering firms. Keep an eye on companies involved in road, bridge, and airport projects.
Technology:
This sector could face challenges. Trump's stance on immigration might make it harder for tech companies to recruit global talent. Additionally, increased scrutiny of big tech could lead to regulatory headwinds.
Remember, these are potential short-term impacts.
The long-term success of these sectors depends on far more than just who occupies the White House.
Economic cycles, technological advancements, and global trends will continue to play crucial roles.
Now, let's extract some valuable lessons from recent corporate news.
Lessons from recent corporate news
📄Nike's stumble in the running shoe market is a masterclass in the dangers of complacency.
They shifted focus to limited-edition sneakers and casual wear, neglecting their core running audience.
Competitors like Hoka and New Balance swooped in, engaging directly with running groups and stealing market share.
The lesson?
Even dominant brands must continually innovate and stay connected to their core customers.
📄Walgreens' struggles against Amazon highlight the existential threat of technological disruption.
Amazon is beating Walgreens at their own game in pharmaceuticals, everyday goods, and even healthcare services.
This serves as a reminder to always consider how emerging technologies and business models might upend traditional industries.
When investing, ask yourself: "Is this company future-proof?"
📄Now, let's address the trend of young investors using astrology and tarot cards for stock picking.
While it's easy to dismiss this as nonsense (which it is), it reveals something important about market psychology.
Many investors, particularly newcomers, make decisions based on emotions, trends, or questionable methods.
This creates inefficiencies in the market – and opportunities for disciplined, rational investors. That’s you.
How to Capitalise on this
Focus on fundamentals: While others chase horoscopes, dig into financial statements, competitive advantages, and long-term growth prospects.
Embrace contrarian thinking: When everyone panics about an election, look for oversold quality stocks. When euphoria hits, consider taking some profits.
Stay informed, but don't overreact: Keep up with news, but filter out the noise. Most daily headlines won't impact your long-term investment thesis.
Remember, successful investing is about playing the long game.
It's not about predicting short-term political outcomes or following the latest fad.
By staying disciplined, focusing on quality companies, and keeping a level head during turbulent times, you'll be well-positioned to build wealth over the long haul.
In the end, the best investment strategy transcends any single election or administration.
It's about owning pieces of great businesses, reinvesting dividends, and letting the power of compounding work its magic over decades.
That's how real, lasting wealth is built – regardless of who's sitting in the Oval Office.
Thanks for reading.
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This newsletter is for informational purposes only and is not intended as financial advice. The insights provided are illustrative and should not be the sole basis for investment decisions. Readers should conduct their own research and consult professional advisors before investing. The authors and publishers are not liable for any financial losses resulting from actions taken based on this content. Investing in the stock market involves risk, including potential loss of capital.