On November 9, the world woke up to a new reality; Donald Trump elected as the 45th President of the United States.
The Republican victory ended up being the opposite of what investors had originally feared; markets rallied like there is no tomorrow.
The reason for this strong movement in markets post the nomination of Trump is a result of pro-growth policies which Trump has emphasised on prior to the election. These include:
Less regulation for Banks – President-elect Trump has mentioned concerns with the Dodd-Frank Act and the impact it has had on community banks and said that his Financial Services Policy Implementation team will be working to “dismantle” it.
Lower corporate tax rates – The tax plan put forth by President-elect Trump during his campaign proposed lowering the statutory federal corporate tax rate to 15% from 35%.
Fiscal stimulus - A plan put out by President-elect Trump’s senior economic advisors outlines up to $1 trillion in infrastructure spending over 10 years
The above measures have led to a strong rally in specific sectors which will benefit from the measures mentioned above.
5 Exchange Traded Funds which will benefit under the Trump administration include the following:
US Biotech – SPDR S&P Biotech ETF (ticker: XBI)
Investors worried that a Clinton Administration would increase regulations, limit drug approvals and reduce the ability to increase drug prices. By contrast, Trump has talked about limiting regulations and has not made an issue of drug prices.
US Financials – SPDR S&P US Financial Select (ticker: SXLF)
More growth, higher rates, less regulation, and lower taxes. Although all the points mentioned are favourable for the US Banking sector, I am convinced that Trump’s promise to dismantle the Dodd-Frank banking regulations sparked the rally.
European Financials – Lyxor ETF Banks (ticker: BNK)
European Banks have criticised the new regulatory standards under Basel IV which have been designed to reduce further the risk of the financial sector. However, now that Trump has been elected, it is highly probable that the reduction in regulation in the US will also happen in Europe.
US Infrastructure – Powershares Dynamic Building & Construction Portfolio (ticker: PKB)
Trump has said that he will pump $1 trillion over a decade on infrastructure spending. This includes spending on roads, bridges, the rail network etc.
US Defence – ishares US Aerospace & Defense ETF (ticker: ITA)
Trump has often talked about increasing spending on defence. At the same time, defence companies have been cutting costs and using cash to buy back stock, both of which contribute towards increasing earnings-per-share.
This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.