A new President will take office soon, but the fundamentals of the economy should remain intact. That doesn’t mean, however, that there aren’t certain sectors that will benefit from the change in administration. Already, the markets have shown a reaction to the election with shifting portfolio rebalances, higher yields and loads of investor speculation.
A conservative President along with the matching majority in Congress means that certain sectors should see benefits over others. The healthcare sector, for instance, has shown steady declines since the election, echoing the thoughts and feelings of conservatives who have opposed the controversial Affordable Healthcare Act passed by President Obama.
If you’re looking to rebalance into a sector that can ride the new administration’s wave higher, here’s what you should be looking at.
A sector that has been out of favor by investors for years following the disastrous subprime mortgage meltdown in 2008, financials is not only undervalued, but stands in a perfect position to benefit from Trump’s policies. Higher interest rates are good for banks and insurance companies who typically keep large swaths of cash in Treasuries and money market accounts. A stronger dollar should boost margins even further, while deregulation, a policy favored by Trump, could make this sector the biggest winner of 2017.
Another big winner of right-wing politics is energy. Lifting restrictions on shale oil production and opening up new oil and gas reserves are part of the new agenda, while coal, a subsector that’s been suffering for years, could see the biggest boost. Trump ran on a platform of creating an energy-independent America, so investors should see a lot of political attention being paid to energy over the next few years. Building infrastructure is part of Trump’s plan as well, so investors should see stocks in construction and engineering rise.
Unsurprisingly, defense companies like Boeing and Lockheed Martin do well with conservatives in office. Defense spending is always on the forefront with a conservative administration with the idea in mind that it helps to create jobs and boost domestic manufacturing. Other companies like Smith & Wesson should see gains as well with Trump’s support to keep the Second Amendment intact and his unlikelihood to create restrictions on gun ownership.
While a steady rise in inflation and interest rates won’t do much to hurt equity values, any spike above what we’ve seen over the past eight years could spook investors and trigger a massive flight to safety. That could mean a sudden rise in gold and silver – even after the impressive runup precious metals had this year.
Considering the length of the current bull market and the last time we saw a correction, a reversal to start out 2017 could act as a negative catalyst for an overblown sell-off as well. Investors will want to watch how the Fed responds in December to interest rates and what the market does in January as a follow-up act.