Will the Trump Trade Turn the US Around?

The big topic right now in investor circles isn’t just the low inflation report and an expected rate cut in September.

It’s also the discussion of what Donald Trump will do if he wins the Nov 8 election. The issue has been tagged the “Trump trade” which has many definitions depending on who is defining it.

After the first Trump term, before the Covid outbreak, economists and Americans felt it made a positive difference. Minority groups said they did well and enjoyed employment and earnings gains and investors enjoyed a significant jump in wealth too. The S&P rose 50% during his term in office.

In fact, IRS data showed middle-income and working-class earners enjoyed a tax cut that was at least double the size of tax cuts received by households earning $1 million or more — “Republicans’ tax reform law resulted in the tax code becoming slightly more progressive – the exact opposite of what Democrats have claimed over the past four years.”

Tom Lee of Fundstrat Discusses the Trump Trade

Recently in a CNBC interview, Tom Lee, stock market forecaster extraordinaire, and Managing Partner and the Head of Research at Fundstrat Global Advisors spoke of the Trump Trade – a term meant to describe the potential effect of Donald Trump’s economic policies.

Tom believes the market is aware of and anticipating the extensive benefits that President Trump is offering the American people and US businesses. This Youtube CNBC interview with Tom 5 years ago is interesting and the setting is eerily similar to today. He thought then, that the market liked the Trump Trade. All the issues still remain today and the FED may want to raise rates again like they did then (for a few months).

Tom Lee 2019 Interview with CNBC

What is Donald Trump’s Agenda?

Trump is pro-America, a term that describes putting Americans and domestic companies first.

Given the ambitions of Democrat corporations, especially tech companies, hedge fund managers and banks, this US loyalty is a threat to the profitability of China investment. President Trump’s initiatives threaten the value of the trillions invested already in China (or Asia). The whole China-first business model is being trashed which might explain the vitriol from Democrat billionaires and their media channels.

President Trump has spoken of tariffs on Mexican imports where China may be using them to get their products into the US tariff-free. For hedge funds and corporations investing fully in Asia, it’s about expanding sales and gaining a share of what were growing markets in Asia. However, those markets are failing. And they’r highly supported by US consumer spending  and investments from US investors, along with stimulus spending by the US government.

President Trump’s Trump trade threatens to upend their China ambitions and force them to repatriate operations back to the USA. And as one report from CBSnews.com says, investors are putting their money down on the “Trump trade.”

Definition: What is the Trump Trade?

You could define the Trump trade as a general overview of the measures he will take to improve the economy. On a granular basis, it might define the effects of deregulation, promotion of American energy, focus away from expensive climate change-focused technology, business and personal income tax cuts, higher import tariffs, and favoring of US companies via policies.

If President Trump wins the upcoming election and the Republicans win the Senate and House, it means total control over the economy and a new bias toward the United States. In that term, the Democrats controlled the house and senate, and blocked his bills and decisions, which left him with limited power via executive orders.

The Trump trade “has to do with those companies viewed as being the primary beneficiaries of a Trump presidency and the agenda he has laid out so far,” JJ Kinahan, CEO of IG North America — CBS MoneyWatch

“The Trump Trade describes the shift in market behavior and investor actions in response to the economic policies and political moves associated with a potential Trump presidency” — Bankrate article on the Trump Trade.

“The Trump trade is a view that less regulation, lower taxes, less immigration and higher tariffs could benefit certain sectors and industries, and have important implications for inflation and bond yields.” — JPMorgan.

The Trump trade is “any investment or divestment that seeks to capitalize on a likely Trump win.” BNN Bloomberg.

Trump’s First Term Saw Big Gains in US Stocks

This Trump bias, as investors see it, means huge gains for US stocks, with a big jump in the Russell 2000 and Dow Jones. Investors see something changing, because they are moving money into Dow Jones listed stocks. They’ve been waiting for interest rates to drop, inflation put under control, and for policies that would block China’s manufacturing sector.

Strengthening the Dow Jones Companies is a direct competition with China’s industrial machine. This bodes badly for China investors who will likely see their stocks plummet further in value in the next 5 years. Trump would likely continue the blockade of sales of advanced AI microchips to China, further strengthening the US grip on AI technology.

Trump Trade in his First Term

In President Trump’s first term as President, US stock markets surged with the dollar strengthening. With a reduction of imports, rise in oil and US product exports, it stands to reason the US dollar would rise not fall. Trump himself said he wants to see a lower dollar.

After freeing up US oil producers, the US became the world’s leading producer of energy. This time around would put that into overdrive.

Presumably, he and his advisors learned something from that first run. This time, he’s said he wants to push the US dollar down to aid competitiveness vs other countries who manipulate their currencies unfairly. A lower US dollar would significantly aid exports but may increase inflation. In fact, with a booming trump economy, inflation is almost a certainty.

Supply for all industries from the housing market to manufacturing to energy has been systematically been throttled.

Opening up supply in a free market won’t happen overnight. It will take years for supply chains to meet new perhaps, record demand.

Overall, the Trump trade translates to improved business conditions for US companies, higher profitability and more secure markets for them to sell in.

Although Tom Lee’s forecast doesn’t really refer to the Trump trade, we wonder if it is dictating the timing of his bold year-end forecasts for the S&P 500, Dow Jones and Russell 2000 which have been eye-opening.