Stock market investors have done well under Donald Trump. Since November 8 2016, the Nasdaq Composite has more than doubled. The S&P 500 has rallied some 63 per cent. It is tempting to assume a second Trump term would herald more big gains for US equity indices.

This ignores how liquidity unleashed by the Federal Reserve and tumbling real yields have driven the stock market’s strong run. The economic damage caused by Covid-19, which has forced companies to draw down cash and raise billions in fresh debt, is not being reflected in these returns.

Index values also obscure the outsized role played by a handful of technology heavyweights. Five companies — Amazon, Alphabet, Apple, Facebook and Microsoft — account for a quarter of the value of the entire S&P 500, according to S&P Global.

Still, given Joe Biden’s stance on higher taxes and tighter regulations, a Trump win is likely to trigger a relief rally for traditional energy, defence and tech growth stocks. Think ExxonMobil and Lockheed Martin for the first two sectors and Amazon for the latter. This would be the modern Trump Trade rather than the bond sell-off that inspired the phrase in 2016.

But a Trump victory would also mean further escalation in trade tensions with China. It would be time to take profits on US-listed Chinese shares. Meat processors like Tyson and Pilgrim’s Pride risk getting caught in the middle if China decides to retaliate by turning away from US agricultural commodities. 

Then there is the dollar. Mr Trump is no fan of a strong greenback and over the past four years has talked the currency down to support his America First agenda. This makes him a headache for multinational companies with big overseas revenues. But a weaker dollar would boost smaller manufacturers in the Russell 2000 index. Investors can play this by investing in tracker funds.

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Some media stocks could be unlikely winners if Mr Trump succeeds in his re-election bid. Although the former reality TV star likes to deride US media as “fake news”, he has been a boon for the industry, driving ratings and subscription growth. Shares in the liberal New York Times have quadrupled. The intense news cycle brought by Mr Trump’s Twitter-based policymaking is good business for news organisations, regardless of political stripe. 

Via Financial Times