Trump’s Economic Policies: A Boon for Specific Sectors?
The election of Donald Trump in 2016 sent shockwaves through the financial markets, triggering a significant surge in certain sectors. While the overall market celebrated, specific companies experienced remarkable growth, largely attributed to expectations surrounding the incoming administration’s policies. Key sectors like banking and energy saw dramatic increases, fueled by anticipated deregulation, increased infrastructure spending, and shifts in energy policy. This article delves into the “Trump trades” of 2016, examining the stocks that benefited most from the shift in political leadership and exploring the factors that contributed to their success.
Key Takeaways: The “Trump Trades” of 2016
- Banking sector boom: Regional and large banks experienced significant gains due to anticipated deregulation and increased lending opportunities.
- Energy sector resurgence: Oil and gas companies saw positive growth, while clean energy companies faced headwinds.
- Dividend payouts: Many of the top-performing stocks offered attractive dividend yields, providing investors with additional returns.
- Historical context: Analyzing stock performance from Election Day 2016 to year-end provided valuable insights into potential future trends.
- Analyst predictions: Experts predicted continued growth for select companies, suggesting sustained positive momentum.
The Banking Sector: A Regulatory Tailwind
The financial sector was among the biggest winners following Trump’s election. The SPDR S&P Regional Banking ETF (KRE), a benchmark for regional banks, soared over 13% on the day after the election. This surge was largely attributed to the anticipation of a more business-friendly regulatory environment under the new administration. Analysts like Mark Fitzgibbon of Piper Sandler highlighted the potential for increased loan growth and a steeper yield curve, both beneficial factors for the banking sector. Fitzgibbon noted, “Now that the election has been decided, we think banks and their customers can again begin to plan for the future with a bit more confidence and expect a more benign regulatory environment.“
Regional Bank Success Stories: Citizens Financial and Fifth Third Bancorp
Two notable examples of thriving regional banks are Citizens Financial and Fifth Third Bancorp. Citizens experienced a staggering 30% increase from Election Day 2016 to the end of the year, followed by a 14% jump on the day after the election. This success is further underscored by its 3.7% dividend yield and 3% upside to the average price target. Fifth Third performed equally well, adding 23% in the post-election period of 2016 and nearly 9% on the Wednesday following the election. It boasts a 3.2% dividend yield and 4% upside to its average price target. The strong performance continued into the following years, with Citizens’ stock gaining 42% year-to-date and Fifth Third at 37%.
Large Financial Institutions: A Similar Narrative
The positive sentiment extended to larger financial firms. Citigroup, for instance, rallied 8% the day after Trump’s victory and added 19% in the period following the election. The company’s 3.3% dividend yield and predicted 11% upside to the average price target added to its attractiveness. The improved outlook encouraged upgrades from analysts, such as Bank of America’s upgrade to a “buy” rating, citing attractive valuation and a lighter regulatory environment. Shares hit a 52-week high, culminating in a 36% year-to-date increase. Analyst Keith Horowitz’s price target increase to $54 from $46 further solidified this optimistic viewpoint.
The Energy Sector: A Mixed Bag
The energy sector exhibited a more nuanced response to the election results. While oil and gas companies generally benefited from expectations of deregulation and increased infrastructure investment, clean energy companies faced a less favorable outlook. This division reflects the differing perspectives on energy policy under the new administration.
Oil and Gas Winners: Marathon Petroleum and Halliburton
Marathon Petroleum and Halliburton emerged as prominent winners within the energy sector. Marathon Petroleum, with its 2.4% dividend yield and a predicted 13% upside to average price targets, added nearly 4% on the day after the election and gained 18% through the end of 2016. Despite a relatively modest increase of nearly 5% year to date, its solid performance reflects its successful navigation of the shifting market landscape. Halliburton, offering a 2.3% yield and a substantial 32% upside potential, showed similar strength, gaining about 7% on the Wednesday following election day and 14% during the 2016 post-election period. While the year-to-date performance showed a decrease of over 16%, attributable to a cyberattack and Gulf of Mexico storms, CEO Jeff Miller reassured investors that their full-year free cash flow and shareholder returns remained unchanged.
Conclusion: A Snapshot of Market Dynamics
The aftermath of the 2016 election offered a compelling case study in how shifts in political leadership can significantly influence specific sectors. The banking and energy sectors, particularly, showcased dramatic changes in response to the anticipated policy changes under the Trump administration. The strong performance of many “Trump trades,” further highlighted by their attractive dividend yields, underscores the significance of understanding the intricate interplay between political landscapes and market dynamics. While past performance doesn’t guarantee future results, examining successful strategies from previous periods offers valuable insights for navigating future market uncertainties. Investors should remember to always conduct thorough research and consider their individual risk tolerance before making any investment decisions.
