To The Moon

On January 20, Donald Trump will again be sworn into office, heralding the start of his second term as President of the United States. With CEOs from major tech companies invited to the inauguration, the financial markets are abuzz with speculation about what "Trump 2.0" might mean for investors. The so-called "Trump Trade" is not just a buzzword; it's becoming a significant strategy for those looking to navigate the upcoming economic landscape. Here's how you might approach the market as we approach this pivotal moment.

The expected volatility in the markets following Donald Trump's inauguration is likely to increase, with a mix of both positive and negative reactions depending on various factors. Here's a breakdown based on current analyses and market sentiment:

Positive Volatility:

• Policy Expectations: Trump's return to the presidency is anticipated by some investors to bring about policies that could favour certain sectors. His campaign promises included tax cuts, deregulation particularly in sectors like energy, finance, and healthcare, and a focus on domestic manufacturing. These policies could potentially stimulate economic growth in the short term, leading to an uptick in stock prices in sectors that benefit directly from these changes. For example, there's an expectation from posts on X that the market might see a "Trump Bump" post-inauguration.

• Crypto and Tech Sectors: There is a sentiment among some investors, as noted in posts on X, that Trump's policies might be favourable for cryptocurrencies and tech sectors due to less stringent regulations or a more crypto-friendly stance, potentially leading to a short-term rally.

Negative Volatility:

• Trade Policy Uncertainty: Trump's history with trade policies, especially his inclination towards protectionism via tariffs, could introduce significant market volatility. His plans to impose tariffs on countries like China, Canada, and Mexico might disrupt global supply chains, potentially leading to short-term negative impacts on markets, particularly in sectors like technology, manufacturing, and agriculture. This is supported by reports indicating that markets are already pricing in some level of trade-related volatility.

• Inflation and Fiscal Policy: The implementation of tax cuts and increased spending could lead to higher deficits and inflation, which might push up bond yields and potentially suppress stock valuations, as noted in various market analyses. There's a concern that if Trump's rhetoric on inflation or his anger influences policy direction, this could lead to cheaper bonds and equities.

• Market Sentiment and Positioning: There's a narrative from some market observers on social media suggesting that markets might correct or see a "sell the news" event right after the inauguration due to over-optimism or expectation management. This could result in short-term negative volatility as the market recalibrates its expectations.

Sector-Specific Opportunities

• Technology: Despite potential trade tensions, tech companies with significant U.S. operations or those that could benefit from less regulation might thrive. With tech CEOs in attendance at the inauguration, there's an implicit nod to the sector's importance. Companies like Apple or Microsoft, which have robust domestic operations and cash reserves, could be well-positioned to navigate through policy changes.

• Energy: Trump's first term saw a boost for traditional energy sources. Companies like ExxonMobil ( $Exxon Mobil(XOM)$ ) or Chevron ( $Chevron(CVX)$ ) might see a resurgence if the administration rolls back some environmental regulations or promotes drilling. However, renewable energy might face headwinds unless new policies favour green tech incentives.

• Financials: The sector could benefit from deregulation. Banks like JPMorgan Chase ( $JPMorgan Chase(JPM)$ ) or Goldman Sachs ( $Goldman Sachs(GS)$ ) might see an uptick if capital requirements are relaxed or if there's a push towards domestic economic growth.

• Cryptocurrency: Trump's recent comments have suggested a more crypto-friendly stance, potentially benefiting companies like Coinbase ( $Coinbase Global, Inc.(COIN)$ ) or indirectly supporting companies investing in blockchain technology.

Strategic Investment Considerations

• Diversification: As with any period of political transition, diversification remains key. Don't put all your eggs in one basket; instead, spread your investments across sectors that might react differently to policy shifts.

• Volatility Hedging: Given the anticipated market swings, consider strategies like options trading for hedging or investing in sectors less sensitive to policy changes.

• Small Caps: Historically, small-cap stocks have performed well post-election due to expected domestic policy benefits. Look into ETFs or mutual funds focusing on small-cap indices.

• Election Cycle History: Post-election periods often see market rallies as uncertainty clears. However, be prepared for volatility as markets digest the reality of policy implementation versus promises.

Which Company to Favour?

Choosing a single company is risky, but if one had to pick based on current trends and potential policy alignment, Tesla might be an intriguing choice. Elon Musk's relationship with Trump, combined with Tesla's focus on both traditional and renewable energy sectors, positions it uniquely. However, this is speculative, and investments should be made with caution, considering Tesla's volatile stock history and the broader market context.

Conclusion

As we stand on the brink of Trump 2.0, the investment landscape is rife with both opportunities and risks. The "Trump Trade" isn't a one-size-fits-all strategy; it requires careful analysis, sector understanding, and a readiness to adapt to rapidly changing policy landscapes. Whether you're an experienced investor or a novice, staying informed, diversified, and prepared for market volatility will be crucial in navigating the economic environment shaped by Trump's second term. Remember, while the market might favour certain sectors, individual company performance can be influenced by a myriad of factors beyond just policy. Keep your eyes open, and your portfolio balanced.

@TigerWire