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Mike’s Moves to Make Buy: Defense stocks, infrastructure plays, gold, U.S. metals producers, drug stocks Sell: Real estate and auto shares, long-term government bonds, emerging market bonds and shares, hospital companies |
This week, a Magnitude 9 “Trump-Quake” rocked markets around the world after the polarizing Republican won the race to become the 45th president of the United States.
First, Trump’s victory is bullish as all get out for defense stocks. They are far and away the biggest likely winners, given Trump’s stated desire to spend billions to strengthen America’s military. Since Republicans also maintained control of both the Senate and the House, it’s not just talk, either. Trump will have a much easier time putting his defense plans into action.
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| Defense stocks will probably soar under President Donald Trump’s administration |
One of my favorite defense stocks is in the Safe Money Report portfolio, and it surged in value this week. You can get that name, as well as several other recommendations for a Trump presidency, by clicking here. You can also check out this article I wrote about the sector several weeks ago.
Second, the Trump win will have a mixed impact on healthcare. Why? Trump and the Republicans in Congress are likely to radically remake or scrap Obamacare. That’s bad for hospital operators because they saw a huge influx of customers under Obamacare. Those customers’ bills were being paid by Uncle Sam, too, reducing bad debt and collections expenses.
On the flip side, Hillary Clinton’s defeat will likely end the verbal bashing of big pharmaceutical and biotech companies in Washington. Since they’re going to face less political pressure over drug price hikes, they could rally and rally hard from deeply oversold levels.
Third, this looks like yet another bearish development for the auto sector, which is already struggling due to the credit-cycle factors I’ve discussed many times.
Think about it: Trump has slammed the NAFTA trade agreement, vowing to tear it up or replace it. He has also pressured companies to move more jobs and factories back to America.
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Regardless of whether you think that’s a good development for American workers or the U.S. economy, it’s bad for the profits of auto and auto-parts companies. They love the cheap labor and lax environmental rules they can find in places like Mexico because they pad their bottom line. Investors are now going to worry about that going away, giving them even more reason to dump these lousy stocks than they already did.
Fourth, the election should be bearish for emerging market bonds and stocks. After all, Trump has said he wants to renegotiate a lot of the trade agreements made over the past several years, and pursue an “America First” strategy when it comes to dealing with foreign leaders on economic issues.
Trump-like leaders and anti-trade movements are also gaining momentum in Europe. Just look at Marine Le Pen’s ascendance in France or the success of the Brexit campaign in the U.K.
That means protectionist impulses could spread to other major economic blocs on the world stage. It means the dollar should gain ground. And it means foreign stocks are going to look riskier to many investors.
Fifth, it should lead to increased investment in gold and rising volatility over time. I say that because Trump is a much more unpredictable, volatile president-elect than a known quantity like Clinton would have been. I believe we’re going to see bigger swings in stocks, bonds, and commodities over time as a result. That means chaos/volatility plays, like gold and mining shares, should prosper in the days, weeks, and months ahead.
But what is the single biggest “loser” investment in this environment? What have I been telling you to avoid for some time anyway, and is now getting crushed? Long-term bonds!
Just look at what’s happening in Treasuries. Long bond futures have plunged more than 20 points in price since July alone. That’s a decline of more than 11% in an investment many people wrongly perceive as perfectly safe. Yields move in the opposite direction of prices. So, on Wednesday, the yield on the 10-year Treasury soared 21 basis points. Then it jumped as much as five more points on Thursday.
It’s not just Treasury bonds getting clocked, either. ETFs that track emerging market bonds, such as the iShares JP Morgan USD Emerging Markets Bond ETF (EMB) … high-yield municipal bonds, such as the VanEck Vectors High-Yield Municipal Index ETF (HYD) (See chart below) … and mortgage bonds, such as the iShares MBS ETF (MBB) … all plunged in value this week. All told, global bonds lost a whopping $330 billion in value on Wednesday alone, according to Bloomberg.
One reason for the carnage is that the era of mindless QE and endless monetary policy interference is dead and buried. Trump has already called out Fed Chairman Janet Yellen for creating a “false economy” and an “artificial stock market” by keeping rates too low and by working hand-in-glove with the Obama administration. That increases the chance she could be “encouraged” to resign, or step down, before her term ends in a few years. Anti-QE movements are gaining ground in Japan and Europe, too, putting the Bank of Japan and the European Central Bank on the defensive.
I have repeatedly lambasted QE as utterly ineffective, not to mention responsible for creating out-of-control asset bubbles in all kinds of asset classes. If we no longer have price-insensitive, manipulative central banks buying boatloads of government and corporate bonds day in and day out, it’s going to help prick those “Everything Bubbles”.
Another problem for bonds? China’s yuan currency is collapsing, forcing that country to liquidate tens of billions of dollars in assets (including boatloads of U.S. bonds) to defend it. The yuan just dropped to a six-year low against the dollar. China’s foreign-exchange reserves plunged by $45.7 billion in October, the fourth monthly decline in a row and the biggest since January. At $3.12 trillion, they’re now the lowest since March 2011.
Lastly, Trump is advocating for as much as $500 billion in infrastructure spending. He’s promising tax cuts and other deficit-boosting programs. One non-partisan group estimates his plans could boost the nation’s debt load by $5.3 trillion. That means an avalanche of Treasury supply is poised to rumble through the capital markets.
So, if you’re going to own bonds or fixed-income ETFs and mutual funds, stick with short-term ones. That means average maturities or average durations (a measure of interest rate risk) of two-to-three years or less. Less than one year is preferable.
Also, stay the heck away from stocks like Real Estate Investment Trusts (REITs), home builders, and other rate-sensitive names. They’ve been disastrous investments for the past few months, just like I predicted they would be, and I don’t see better times for them in a rising-rate regime.
Finally, understand that in this new era, the whole “buy an index fund and forget it” approach simply won’t work. The divergence between market winners and losers was already increasing in the past few months, and it’s only going to get wider in 2017 and beyond.
You’re going to need guidance and you’re going to need to stay nimble. So, I encourage you focus on the advice you get here in Money and Markets, and in my Safe Money Report. No matter your political bent or your thoughts on Trump’s policies, there is no question they’ll impact the investment markets. That creates both major risks and huge opportunities.
Now, I’d love to hear from you. What are you buying or selling post-Trump? Any stocks and sectors you really like, or really hate, here? Share your opinions in the comment section here at the website.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 32 comments }
Trump win , Asia stock meet crisis
I thought Bank, Energy, and Medical Related are good under Trump.
As you said, my FSMEX mutual fund will not be good?
I do not think the FED will raise rate next month, but next year. Do you agree?
Thanks for sharing
A couple years ago you suggested (then suggested selling) the short 20 year Treasury bond ETF, TBF. I don’t see you mention it here so curious to your thoughts?
Whilst there is an emotional connection between the UK’s Brexit movement and Donald Trump’s movement Brexit is not an anti free trade movement. In fact quite the contrary Brexit is about free trade and the UK’s freedom to negotiate such deals on its own account not through the European Commission, and as many deals as it can. Although the UK is a relatively small country of around 60 million people it is the largest market in Europe for foreign goods of all kinds and in its own right has a larger (by value) consumer market than any other European country, including Germany.
Mike,
How do you think convertibles such as CWB will perform in this market? Thanks.
Mike,
Your assessment sounds right-on.
Stanley Druckenmiller claims that on the night that Trump was elected he dumped all his gold, apparently because the reasons for owning gold had suddenly vanished. If so, I should think that it would be with an eye to buy it back at lower prices after first unloading stocks and bonds held onto with Hillary and Janet in mind. I believe that the man is too intelligent to truly believe that the world economy can be restored by one election.
On the horizon I see the elites pumping up faith in Trump to set him up to become the scape goat to eventual certain economic collapse resulting from measures that the elites themselves put forth or at the very least supported in the past. Thus, the election of Trump will hasten the coming rise in the price of gold in my opinion.
I have OHI, ditched 2 Brazil losers-ITUB and PBR. Made good $$ selling a health care fund in case Hillary won.
REITS are ok depending on what business it is. CA is data storage, OHI is old folks housing. NLY should be sold if rates go up, I wouldn’t buy it now.
Reagan style massive spending programs and tax breaks for millionaires. I am glad he was elected as a change to Washington
Republicans do (white) magic for business.
Munis in states with financial problems (ala Illinois or California) should be avoided like the plague.
China and Russian investors are buying large amounts of gold and silver some coming from the u s , are there investers that much smarter then the u s investors
Sixth, Trump’s science denial of environmental realty has already led to pronouncements that will undo years of hard fought gains. He has vowed to return the U.S. to the 1950’s in terms of environmental protection, none. So now is the time to short the Earth as a habitable Planet. The Earth will be like a 50 year bond with both having no chance of being repaid. The good news is that for those of us over the age of 50 we don’t need to leave anything for our heirs just spend it all before we go. The bad news is for those under 50 take the advice that Joseph Stalin gave to his troops, save the last bullet for yourself.
The extreme efforts to eliminate carbon fuels will have negligible impact but have huge costs and hurt the poor. China and India will expand pollution. Science is not settled on this. The alleged 97% agreement of scientists for human caused is not true. Remember the Artic ice cap was supposed to be melted a few years ago. Yes, we have had warming or we would still be in an ice age.
I’m one of the 97% and it is settled science except in the minds of Fox viewers and other science illiterates. The amount of Arctic ice is at its lowest point in recent geologic history, the “Northwest Passage” is now a reality. Fifteen of the hottest sixteen years have been since 2000. Monthly temperatures have set records for 20 months straight. China has surpassed the U.S. in the installation of solar energy.The grandchildren and great grandchildren of climate deniers will hate them.
HERE WE ARE YOU LIBERAL CRY – BABIES ALMOST A YEAR SINCE THE ELECTION OF TRUMP THE ECONOMY HAS BEEN JOLTED BY HIS POLICYS UPWARD. CONSUMER SENTIMENT HAS HIT A 17 YR HIGH WOW THE STOCK MARKET DJIA IS UP OVER 5600 POINTS WOWWWW NOT A SIGN OF A RECESSSION HERE IN THE U.S BUT YOU CRYBABY LIBERALS ARE STILL WHINING ABOUT LOSING I DISTINCTLY REMEMBER THE FORCAST FOR THE UNITED STATES ECONOMY IN SPRING OF 2016 WAS THAT IT WOULD BE IN RECESSION AND EVERYONE ALL YOU SNOWFLAKES THOUGHT THAT HILLERY AS PRESIDENT WAS A SHOE IN
Dear Mike,
Thanks for the information! Here’s a thought and a suggestion For Mr. Trump. It could also be a bit of entertainment for the American people too. Why not have Mr. Trump have the US Army roll up to the doors of the Not so Federal Reserve and, by Executive Order, close the doors and keep them closed until they can come up with a real plan to stop extorting money from the American people. Perhaps even go back to a modified gold standard!!! Just a thought.
Thanks,
Creig
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I have purchased 2 stocks from your safe money report they are both down a by good amount lets hear something about losers.
Dear Mr Larson,
I’m not a subscriber, just an interested observer , but really enjoy your wisdom and insight. Thank-you
Is AEM a good buy now or am I grabbing a “Falling Knife”?
When do you expect the next recession, that most think will never happen again? Don’t you think banks, construction and medals will be impacted by a major economic downturn? What is you opinion on solar and wind? I still feel we will continue to see a shift to electric cars and more alternative electric generation.
No one seems to be asking about the environment.. I understand that Trump is appointing a person that doesn’t believe there is global warming going on and that oil and coal are fine to burn… Leslie Stahl didn’t even brig it up as an issue on 60minutes…
Surely, it is now more than a “fad” in a majority of folks??
Just returned from Europe.. LOTS of solar and wind.. Holland has huge amounts of wind turbines in the ocean.. are they smarter than we???
Anybody watching Freeport FCX? Looking strong!
my favorite stock, should be much higher , i hope.
oxfordclub says BUY!BUY! BUY!
The last election proved that you cannot trust the media for being right. Most of our reporters end up giving their opinion (depending on their political position) as opposed to just giving you the facts and having you decide on what is right and wrong.
The same for “economists”. About half of the gurus say that the market will rise, the other half say it will fall. Who is right? At the end of the day, you need to use common sense and your own gut (and hope you are right).
Trump is a businessman. That is all he knows. He also knows that if he gets the economy fixed, many of the other problems will become less acute and he will look like a great president. With an ego as big as he has, so what is he going to do once in office – focus on the economy (jobs), which means tax deduction and economic stimulation. With lower taxes, there will be more profits and people will have more money (to spend). Interest rates will probably also go up, attracting more foreign capital, which will prop up the dollar and the stock market. All of this look good, at least for the next few years. But nobody says that it won’t be a bumpy ride in the next 6-18 months. So fasten your seatbelt, and if you are a longer term investor, you are in for a good ride. But don’t get off in the middle of the ride. You can get hurt.
CHARGE EVERYONE $100. PER MONTH FOR MEDICAL COVERAGE WITH A $1000. DEDUCTABLE. THAT WILL KEEP EVERYBODY IN THE WORK PLACE INSTEAD OF THE DOCTORS OFFICE. PUT LIMITS ON HOSPITAL AND DOCTORS COST. ANY COST OVER THERE CHARGE WILL BE BETWEEN THE PATIENT AND THE DR. OR HOSPITAL
Chuck,
You are absolutely dead on. Common sense, maybe someone will besides me will hear you.
Well what I think is that the world is already bad he surenot going to make it no batter here things are high as it is and he talking about taking insurance away now u tell me how good would that be for people like me that has a 7 year old boy that has to go back in front to the doctor smfh
TIMELESS INVESTING STRATEGIES
For most investors, buying the whole market ( Wilshire 5000 Index) is still a pretty good, low cost, and LONG term approach suitable for a large chunk of their retirement money. Besides, Investment options in 401 (K) retirement accounts can be limited to what a given employer makes available. Besides, employer matching contributions are essentially free money. All hourly workers should take advantage as they need the extra contributions, which are also tax-deferred.
Saving as much as possible and not chasing returns ( or yields) is the smartest strategy to employ when investing. Ideally, you may avoid the big stock market drawdowns by having a balanced portfolio and adequate asset class diversification. Sometimes, being all-in is not good risk management. It pays to avoid too much asset or concentration in a single stock or asset class, as well.
TOPPING OF REAL ESTATE & TRUMP’S FISCAL “BOX”
Residential real estate, especially in the large high cost urban areas, seems especially vulnerable to a potentially significant drawdown as 10-Year Treasuries climb in the next 4-5 years. If interest rates go up say 400 basis points in the next four years, that would cause the appraised value a house to decline by about 40% if history is a guide.
This would be a “crash” to any homeowner who took out a mortgage at today’s low rates but very high loan amounts ( jumbo 30-Year Mortgages). The real estate “bubble” may burst, with all its side effects once again. In fact, many more homeowners would again be underwater and stuck, if they can even continue making payments in a soft economy .
So, I am not sure the FED would go along with this, if they have any say in the matter. High deficits and interest rates will curb any overall economic growth. Thus, President elect Donald Trump may find himself stuck in a fiscal box not entirely of his doing.
If I’m hearing you right, it sounds like infrastructure stocks and defense in a Trump presidency, would be the ones?