Go Against The Flow

While the Trump Bump Has Spawned Winners, the Smart Move Is to Focus on Thelaggards.

- Taylor Tepper

PRESIDENT TRUMP’S ELECTION has unleashed repressed animal spirits on Wall Street, pushing equity returns higher in the first month of his administration than under any other President’s since Lyndon Johnson. Investors are entranced by the possibility of $1 trillion in infrastructure spending, reduced corporate taxes, and the rollback of Obama-era regulations on business. 

The S&P 500 index of U.S. stocks has soared 9% since November, with sectors poised to benefit from faster growth and inflation, like industrials and financials, leading the way. Bank stocks in particular have surged 20% on the belief that Trump’s policies will not only ramp up economic activity but also push the Federal Reserve to raise interest rates quickly to keep the economy from overheating.

But when euphoria abounds, you often profit by questioning the direction of the herd. That’s how investors made real money under the last administration, when stocks you might have thought would have gotten crushed under Obama—like shares of gun manufacturers and Big Oil—outpaced the broad market (see chart).

What’s more, “the enthusiasm following the election of Donald Trump has waned a bit as the realities of policy priorities and getting things done in Washington begin to set in,” says Liz Ann Sonders, chief investment strategist for Charles Schwab.

That means now is the perfect time to embrace your inner contrarian and look to out-of-favor parts of the stock market that the rest of Wall Street is convinced will get crushed under Trump.

GLOBAL EXPOSURE